This increased demand, combined with the Acquisition, is drawing foreign LNG tank
builders —_ into the US. market.
Specifically, six different companies and joint ventures have entered the U.S. market since the
Acquisition. Complaint Counsel fails to recognized that these entities are massive international
construction conglomerates capable of, and currently providing, strong competition in the U.S.
market.

(a) Technigaz/Zachry

French-based SN Technigaz ("Technigaz"), a subsidiary of Bouygues Offshore, and now
Saipan, is one of the world's leading suppliers of liquefied gas facilities.
Technigaz has vast experience designing and constructing LNG tanks and LNG import terminals
around the world. In early 2002, Technigaz entered the U.S. market.

Specifically to aid in this effort, Technigaz formed a joint

venture with H.B. Zachry ("Zachry"). Based in San Antonio,

Zachry is one of the largest, most respected construction companies in the U.S.

The Technigaz/Zachry joint venture has been hotly pursuing several LNG opportunities

in the U.S. and Mexico. For instance, Technigaz/Zachry
in submitting a bid proposal to
In addition, Technigaz has submitted budgetary pricing to

a and to

In addition, the joint venture has made sales presentations to a

14



companies can construct these tanks in the U.S. and are actively seeking this work.

U.S. customers, many of whom are foreign-owned, would consider a

foreign contractor for an LPG project.

3. Current LPG Customers Recognize The Presence Of Sufficient Post-
Merger Competition.

Customers and competitors uniformly agree that the Acquisition will not lead to price
increases. For example, believes that competition among CB&I, AT&V, and Matrix alone
is sufficient to prevent a price increase, and foreign competitors would enter the market if

competition slackened.

In fact, it appears that the Acquisition may increase the level of competition

from smaller tank manufacturers.

Two examples illustrate fierce competition in this market. In 2000, purchased an LPG
tank for its facility in and

submitted bids on the _ project.

awarded the contract to AT&V because it had the and could competently
handle the job. AT&V's price was so competitive that it
"beat the socks off of " was very pleased with AT&V's

performance on this job.

Second, most tank construction companies can compete with CB&I on LPG projects,
regardless of their prior LPG experience. Morse Construction Group ("Morse"), a small tank
manufacturer in Washington State, built a large LPG tank for Texaco in 1994 despite never

having built a low temperature or cryogenic tank before. Morse

35


to enter the LIN/LOX tank market. It has hired several employees with LIN/LOX experience
(including a former Graver LIN/LOX tank builder) and has obtained substantial amounts of
equipment from Graver. CBT plans to use this material and personnel to expand its presence in
this market.

CBT has been actively submitting formal bids and budget pricing for LIN/LOX tanks.
CBT has submitted for
Further, CBT has been

pre-qualified by as a supplier of LIN/LOX tanks.

3. Recent LIN/LOX Projects Demonstrate Timely, Substantial and
Sufficient Competition that Rebuts Complaint Counsel's Case

The evidence will show that entry of the so-called "fringe firms" has created intense
competition sufficient to constrain prices. The preponderance of customers, sophisticated

players in the industrial gas field, believe that the Acquisition has not affected prices for

LIN/LOX tanks. For example, does not believe that prices for these tanks have
increased, and is satisfied with the current level of competition. Other
customers, such as and are satisfied with the prices that they received

for products in this market and have not seen any evidence of a post-Acquisition price increase.

Competitors believe that the Acquisition

has created opportunities for them in this market, and that the market is extremely competitive.

Five specific examples of post-Acquisition activity in this market demonstrate that the

Acquisition has not lessened competition in any way:

In light of this evidence, it is remarkable that Complaint Counsel could assert that CB&I's competitors are unable
to compete on cost and quality.

31



15. | Demand for field-erected LIN/LOX tanks is very low due to excess
capacity of oxygen and nitrogen production in the U.S.

16. Due to excess capacity, traditional purchasers of LIN/LOX tanks are
rarely in the market for new tanks or plants.

7 Graver Manufacturing went out of business due to an overall lack of
demand in this tank market.

18. Moreover, six foreign LNG tank builders ventures have entered the U.S.
market since the Acquisition.

19. The proposed Consent Decree includes a

20. The proposed Consent Decree offers

21. The proposed Consent Decree alleviates potential concern of TVC
customers that

22 The proposed Consent Decree includes

23 The proposed Consent Decree includes

24. Customers have testified that they did not know whether a divested PDM
would be allowed to bid on TVC projects because of its unknown financial circumstances.

25. Similarly, were a foreign competitor to acquire a divested PDM-EC, the
customers do not know whether that divested company could bid because of the "made in the
U.S.A." requirements in their government contracts which are imposed for reasons of national
security.

26



In 2000, PDM's major (30%) shareholder decided to explore various ways of converting
its PDM stock to cash. PDM entertained ideas from investment bankers
Tanner & Co. ("Tanner") and Goldman Sachs. After considering various options, PDM hired
Tanner to sell all five of PDM's divisions for cash as quickly as possible.

In July 2000, PDM issued a widely-disseminated industry-wide press release announcing this
fact.

Tanner and PDM management concluded that selling the EC and Water Divisions
separately would be an expensive and difficult endeavor because of the nature of the divisions
and their shared resources, and therefore recommended selling them together as one unit.

Further, at the time PDM's board committed to
sell the assets, the PDM-EC Division's profitability had dropped more than 18.3% from 1999 to
2000, resulting in a loss that was initially estimated to be $8.9 million. In March
2001, the EC Division was forced to take additional write-downs on certain projects, and its
actual EBIT loss for fiscal year 2000 was approximately $30 million.

There were no signs that the EC Division's business was improving after 2000.

Tanner and PDM's management determined that, because of these losses, it was unlikely
that another purchaser would emerge. They decided that if the CB&I deal did not close, they
would simply liquidate the EC Division.

In December 2000, at a time when it looked like the CB&I deal might fall apart
because of a disagreement over commercial terms, Tanner and PDM management went so far as
to draw up a plan of liquidation for the EC Division. Similarly, a February 2001 analysis

prepared by Tanner analyzed liquidation of the EC Division if the deal did not close and opined

40


If the defendant rebuts the presumption, the burden of producing
additional evidence of anticompetitive effect shifts to the
government and merges with the ultimate burden of persuasion,
which remains with the government at all times.

(citations omitted). See also United States v. Syufy Enters., 903 F.2d 659, 654 n.6 (9th Cir.

1990) ("[E]vidence of high market share establishes a prima facie antitrust violation, shifting to
the defendant the burden of rebutting the prima facie violation. The converse is not true,
however; evidence of a high market share does not require a district court to conclude that there
is an antitrust violation.") (citations omitted).

Complaint Counsel must show more than some impact on competition -- it, instead, “has
the burden of showing that the acquisition is reasonably likely to have ‘demonstrable and
substantial anticompetitive effects." Kraft, 926 F. Supp. at 358 (quoting United States v.
Atlantic Richfield Co., 297 F. Supp. 1061, 1066 (S.D.N.Y. 1969), aff'd, 401 U.S. 986 (1971)).

There must be a showing that the alleged "demonstrable and substantial anticompetitive effects"

are probable and not mere "ephemeral possibilities." Id.; see also M.P.M., Inc., 397 F. Supp. at
90 ("Probability of the proscribed evil is required.").

Historical concentration statistics do not by themselves satisfy Complaint Counsel's
burden of proving "demonstrable and substantial" anticompetitive effects. As Justice Thomas
stated in Baker Hughes, "[e]vidence of market concentration simply provides a convenient
starting point for a broader inquiry into future competitiveness... ." 908 F.2d at 984. That
broader inquiry includes an analysis of barriers to entry, which, if low, are one type of evidence
which rebuts a prima facie case. See id. ("[W]here entry barriers are low, market share does not
accurately reflect the party's market power."). See also Syufy, 903 F.2d at 664-65; United States
v. Waste Mgmt., Inc., 743 F.2d 976, 982 (2d Cir. 1984) (holding that under General Dynamics,

"a substantial existing market share is insufficient to void a merger where that share is


33.

34. has also solicited budget pricing from
was comfortable with the

range of pricing received from these competitors, and believes that the budget quotes were all

plans to invite to provide final
firm price bids for this major LNG project.
35. along with other partners, is developing a state-of-the-art,
» LNG import terminal which will contain
LNG tanks.
36. In December of 2001, hired -based to conduct
preliminary engineering and design work on its LNG project.
In the summer of 2002, hired to assist it in preparing its permitting

application to FERC by providing detailed LNG tank drawings and other logistical support.

37. When solicits formal bids for the EPC contract on this job,
plans to consider
as potential candidates.
38. is confident that "there is enough competition between the
others, with and and all the rest of them that we have mentioned that we will get a

good selection of bids when we go out for bids.”

39. is planning to construct an LNG peak-shaving facility in
The
facility will include a LNG tank.

40. has retained the services of to perform
front-end engineering and design work for this project. :
Representatives of had face-to-face negotiations with In
addition, has received budget pricing from

While has not yet reached the point of

securing final firm price bids, it is considering inviting
which is performing the preliminary engineering analysis, to bid on the EPC
contract for this project.

41. Local safety requirements may require to build an all-
concrete double-containment LNG tank.


bid. For that reason, a contractor will err on the "high side" when calculating a budget price. For
example, when calculating a budget price, a contractor such as CB&I will often not know: 1)
what schedule the customer plans to follow in building the structure; 2) the exact location of the
job; 3) what engineering design will be used for the structure; 4) the identity of the ultimate end
user of the structure; or 5) the approximate start date of the project. The evidence will show that
this information is crucial to calculating a final fixed price bid, and that a lack of information on
these and other issues can result in dramatically varying budget prices.

Customers do not purchase structures based on a budget price. When they wish to purchase a
product, they solicit a final, firm price bid. At that time, they provide all of the necessary
information set forth above.

The wide variance associated with budget prices is also due to the fact that contractors
such as CB&I do not put extensive effort into calculating a budget price, primarily because the
number is not binding on CB&I or the customer. For example, CB&I does not shop around for
the best price on steel, insulation, or concrete at the budget pricing stage. This effort is reserved
for the process of calculating final firm price bids; this effort generally involves contacting 50 to
70 vendors for current materials costs. For that reason, a budget price is generally higher than
the final firm price bid on the same job.

Budget pricing is the only post-Acquisition evidence upon which Complaint Counsel

43

relies in an attempt to establish an anticompetitive effect. For the reasons

discussed above, this evidence is meaningless.

* Tn addition, many of the budget prices used by Complaint Counsel to support its case are not even typical budget

prices. For many budget prices, CB&I will have some information about the job, such as the decade or state in

which the project will be built. In the case of Complaint Counsel's examples, virtually no information is provided.

For example, the cited by Complaint Counsel was provided to as part of a
Similarly, a cited

50



2. LIN/LOX "Entry Barriers"

¢ Subcontracting -- Subcontracting is not an entry barrier. In
fact, subcontracting can often lower a contractor's costs.
Each step in the construction of a LIN/LOX tank is easily
subcontracted.
Like all builders ~— of

LIN/LOX tanks, CB&I subcontracts portions of those jobs.

¢ Equipment -- Access to equipment is not an entry barrier.
Equipment needed to construct LIN/LOX tanks is readily available. It is not
substantially different from the equipment needed to construct a conventional

storage tank.

e Fabrication -- Fabrication is not an entry barrier. Any company able
to fabricate steel plate storage tanks can fabricate the components for a
LIN/LOX tank. New entrants are capable of
fabricating a LIN/LOX tank.

e Engineering -- Engineering is not an entry barrier, as it is a

fairly standard process that a tank construction company can easily accomplish
through subcontracting to an outside firm, hiring experienced personnel, or
simply training current employees.

e Personnel -- Access to personnel is not a barrier to entry. Each
new entrant has already hired personnel with LIN/LOX experience.

¢ Reputation -- Reputation is not a barrier to entry. AT&V, Matrix and
CBT have all been accepted as qualified by the majority of the LIN/LOX

customer base.
Customers have testified that their

primary motive in awarding a project is low price, not reputation.”

° testified that low price, not reputation or performance record, is the number one factor in selecting
a tank manufacturer.

Q So then, is it fair to say that even if a field erected LIN/LOX tank supplier is
having some problems with a particular job, that wouldn’t preclude you from
considering them for the next job down the pike?

A: That is correct. Low price will always get you there.

48


"drastic" remedy, and "cannot be had on assumptions." United States v. Crowell, Collier &

MacMillian, Inc., 361 F. Supp. 983, 991 (S.D.N.Y. 1973). Rather, there must be "factual bases
and economic theory as applied to such facts" to support such a remedy. Id. Furthermore, "even
in a case of a judicial determination that an acquisition was in violation of Section 7, a claim of
hardship attendant upon complete divestiture can be considered in determining the appropriate
remedy for the redress of antitrust violations where something short of divestiture will
effectively redress the violation." U.S. v. International Tel. & Tel. Corp., 349 F. Supp. 22, 31

(D. Conn. 1972).

If the Court finds that Complaint Counsel has met its burden of proof in this case, which
CB&I respectfully submits it has not, then, in the alternative CB&I urges the Court to deny
Complaint Counsel's request for rescission of the Acquisition and the reestablishment by CB&I
of two distinct and separate businesses. Such a remedy is impossible, impractical, potentially
harmful to customers, and/or unnecessary for several reasons.

First, PDM no longer exists except on paper. Therefore, rescission simply cannot be

done.

Second, customers in this case have uniformly stated that divestiture of PDM assets
would not restore competition. See F.T.C. v. Great Lakes Chemical Corp., 528 F. Supp. 84, 94-
95 (N.D. Ill. 1981) (stating that "[a] key factor to consider in analyzing whether the proposed
acquisition will violate Section 7 is the impact of the transaction on . . . customers"). For
example, one CEO of a customer stated that a breakup of CB&I would "weaken a good supplier,

while not reconstituting a viable altemative supplier."

testified that if as a result of a breakup "CBI was weakened enough so it couldn't

54


in CB&I's exit from the TVC market, it is entirely possible that no TVC suppliers would exist in

the United States, causing a true hardship for TVC customers.

In short, Complaint Counsel's proposed remedy should be rejected as inappropriate and

punitive. To the extent this Court determines competitive issues exist, Respondents’ proposed

relief solves such concerns.

Dated: November 5, 2002

Respectfully submitted,

Wien

Duafie M. Kelley /
Jack J. Crowe

Jeffrey A. Leon

Greg J. Miarecki
Christopher B, Essig
Michael P. Mayer
Andrew D. Shapiro
Danielle A. R. Coffinan
David E. Dahlquist
James F. Herbison
Lance W. Lange
Winston & Strawn

35 West Wacker Drive
Chicago, IL 60601-9703
(312) 558-5600 (voice)
(312) 558-5700 (fax)
dkelley@winston.com
jleon@winston.com
gmiareck@winston.com
cessig@winston.com
mmayer@winston.com
ashapiro@winston.com
dcoffman@winston.com
ddahiqui@winston.com
jherbiso@winston.com
lange@winston.com

58


B. Complaint Counsel Fails To Address The Sufficiency Of Post-Acquisition
Entry.

It is undisputed that substantial entry has occurred in all of the relevant markets since
1998 (except possibly for TVCs). As discussed extensively above (see supra at 12-40), the post-
acquisition entry in this case is actual, substantial, and sufficient to constrain prices. CB&I has
lost two of the last three jobs in the LNG market, and three of the last four competitively-bid jobs
in the LIN/LOX market. The jobs that CB&I has won have been at (See
supra at 12-40.) Complaint Counsel essentially ignores these facts, as does their expert Dr.
Simpson. Remarkably, Dr. Simpson fails to address, or distorts the
enormous importance of, the story.”!

c. Complaint Counsel's Supposed Entry Barriers Are "Red Herrings."

Complaint Counsel has identified several entry barriers faced by CB&I's competitors in
the relevant markets that, according to Complaint Counsel, will prevent them from competing
with CB&I on a level playing field. As discussed above, the actual entry of these competitors
directly undercuts Complaint Counsel's arguments on this score. See In re Grand Union Co., 102
F.T.C. 812, 1983 F.T.C. LEXIS 61, at *529 (July 18, 1983), Complaint Counsel's reliance on
these so-called entry barriers is misplaced, as set forth below.

1, LNG "Entry Barriers"

¢ Subcontracting -- Subcontracting is not an entry barrier. In fact,
subcontracting portions of an LNG project can actually lower costs.
For this

“° Complaint Counsel repeatedly cites In re Coca-Cola, 118 F.T.C. 452 (1995) to support its case. However, the In
te Coca-Cola court reviewed three years of post-acquisition evidence and concluded that “after the acquisition
[prices] rose to above the national average for Dr. Pepper retail prices." Id. at 608-09. The reverse is true here.

“' Dr. Simpson suggests that behavior in the bid might have been an instance of exercising

its new market power by placing additional conditions on its bid. In fact, offer to
build the entire project reflects only a desire for more business. This behavior does not reflect market power deriving
from the Acquisition, because engaged in the same behavior long before as Dr.

Simpson himself points out.

46


(d)  Daewoo/S&B
Daewoo Engineering and Construction Co., Ltd. ("Daewoo"), a Korean multinational
corporation, has built 12 LNG storage tanks in Korea since 1993.
Daewoo has become the "dominant contractor" in the design and construction of LNG
terminals in Korea, the world's largest importer of LNG. Daewoo entered the U.S.
LNG market this year. To assist it in this regard, Daewoo forged an alliance with S&B

Engineers & Constructors ("S&B"), based in Houston, Texas.

This joint venture has begun to aggressively compete for LNG work in the U.S. Earlier
this year, the joint venture made efforts to bid to
Itis currently pursuing an LNG import terminal for in
Further, Daewoo/S&B was recently retained by
to prepare preliminary tank designs and engineering in connection
with its FERC application, and is currently being considered as a candidate to build the tanks for
that facility.
Customers believe that Daewoo/S&B is a competitive force in the U.S. market for LNG
facilities. and others believe that the joint venture has the requisite experience and

capability to build these tanks, and will consider it for future LNG work.

° approached after prequalified its bidders for the LNG tanks.
Although did not accept a bid from it did not do so because it already had

enough bidders, not because it questioned the abilities

18


had ample general experience constructing a variety of atmospheric storage tanks.

Texaco permitted Morse to bid on its LPG tank project even though it was not on

Texaco's approved bid list. In
addition to Morse and bid on the
project. Texaco ultimately selected Morse as the lowest bid and because

Morse met all the other requirements.

Morse timely completed the LPG tank without any

major problems, and Texaco was satisfied with the performance, the price and the quality

33

D. The Thermal Vacuum Chamber Market Is De Minimis/Sufficient
Competition Exists.

Although Complaint Counsel alleges that the Acquisition has left only one manufacturer
of large thermal vacuum chambers ("TVCs") in the U.S., there is currently no demand for TVCs
because the market is overbuilt and advances in technology are making them obsolete.
Remarkably, Complaint Counsel fails to note that CB&I has not built a TVC since 1984, and that
there has only been one constructed since 1992 (in 1997 by PDM). Under the facts of this case,

no relevant antitrust market should exist here.** Notwithstanding the de minimis market,

* The weakness of Complaint Counsel's case regarding LPG tanks is evident from the argument set forth in its Trial
Brief. Unlike Respondents, who have cited evidence that will actually be presented at trial, Complaint Counsel
relies primarily on the affidavit of was
originally on Complaint Counsel's witness list, but was eventually pulled from the list once it became evident that

has no relevant knowledge in this area. Further, Complaint Counsel ignores the testimony of customers or
competitors actually in this market, preferring to rely on its HHI calculations and unsupported assertions of price
increases,

34 Indeed, the size of the relevant product market must be substantial. United States y. Baker Hughes, Inc., 731 F.
Supp. 3, 9 (D.D.C. 1990) ("The minuscule size of the market creates problems for the government's case, because

one element of a Section 7 violation is that '[t}he market must be substantial."") (citing United States v. Dupont &
Co., 353 U.S. 586, 595 (1957)). The evidence provided by the FTC has not demonstrated, and thus, the FTC cannot

argue that, the market for field-erected TVCs is "substantial."

36



23. Mitsubishi Heavy Industries ("MHI"), a Japanese conglomerate, is poised
to enter the U.S. LNG tank and facility market, having built 36 large LNG storage tanks in
diverse international locales. It is currently competing against fora
project in and is discussing work in the U.S. with :

24. Customers believe that MHI has the capability to construct similar projects
in the U.S. at a competitive price.

25. U.S. customers continue to pre-qualify foreign LNG tank manufacturers
for bidding and accept their bids.

26. Dynegy awarded an EPC contract to Skanska/Whessoe for the Hackberry
Project -- an import terminal :
The facility will contain
When completed, the Hackberry Project will be the largest in the U.S.

27. As part of its search for an EPC contractor, Dynegy engaged in a detailed
assessment of qualified competitors, including analysis
Dynegy interviewed
including

28. Dynegy felt that all of these companies
Dynegy eventually selected

Skanska/Whessoe over to serve as its EPC contractor for the Hackberry Project.

29. Dynegy investigated and pre-qualified different bidders --

Dynegy asked all bidders to submit lump-sum turnkey bids for the construction of the LNG
tanks for this project. Dynegy received bids from >
sometime after February 1, 2002.
All bids met Dynegy's

30. Although had not submitted a bid for the LNG tanks during this
process, it later approached and asked to submit a bid.
a bid from , because it was satisfied with the bids already submitted by
31.
32.



TABLE OF AUTHORITIES
CASES

In re Coca-Cola Bottling Co., 118 F.T.C. 452 (1994)... .21, 32, 46

Dr. Pepper/Seven-Up Cos., Inc. v. FTC, 991 F.2d 859 (D.C. Cir. 1993) ...ssesssecsseessneessneesseeeeenne43
F.T.C. v. Cardinal Health, 12 F. Supp. 2d 34 (D.D.C. 1998) ..sscsssccssssessssessssessoneessessneecseranneeesssnnensD

E.T.C. v. Great Lakes Chemical Corp., 528 F. Supp. 84 (N.D. Ill. 1981) ......-sessssseesseeees- 20, 43, 54

FTC v. H.J. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001) ...ssecsssssessseccsssessseecesescsssessseessnnsessseessneeee Ad

E.T.C. v. PPG Industrial, Inc., 798 F.2d 1500 (D.C. Cir. 1986) ....ssssesssssecsssesssneessescsnesesnecennesens 7,9

E.T.C. v. Procter & Gamble Co., 386 U.S. 568 (1967) .....scccssccsecessscessssesetessnssssesnesseeentesseeseeeeaeeeed

In re Grand Union Co., 102 F.T.C. 812, 1983 F.T.C, LEXIS 61, (July 18, 1983)... 46, 53

Hospital Corp of America v. F.T.C., 807 F.2d 1381 (7th Cir. 1986) ....sescssseceeessseeseseesesseesseel

Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255 (7th Cir. 1981) ....cecssessessssssseesessersseseseersresseenseee dL

New York v. Kraft General Foods, Inc., 926 F. Supp. 321 (S_D.N.Y. 1995)... 7, 8, 20

Olin Corp. v. F.T.C., 986 F.2d 1295 (9th Cir. 1993) .....cscseccsessssssssesseessesssssneessenrsnsvecenseanees 9, 39, 42

R.R. Donnelley & Sons Co., 120 F.T.C. 36 (1995) .essssssssseessseessssesssstsssnesesnssasesssneessneessseserseee)y LO

US. v. International Telegraph & Telegraph Corp., 349 F. Supp. 22 (D. Conn. 1972)... 54

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

United States v. Atlantic Richfield Co., 297 F. Supp. I 1061 1 SD. D.N.Y. 1968), affd 401

U.S. 986 (1971)... seia8

United States v. Baker Hughes, 908 F.2d 981 (D.C. Cir. 1990).....essesessseresssseseeels 7, 8, 9, 10

United States v. Baker Hughes, Inc., 731 F. Supp. 3 (D.D.C. 1990).....sssssssessersssrsssseesressrenseeeseee dO

United States v. Calmar, Inc., 612 F. Supp. 1298 (D.N.J. 1985) ...cesssssssssssesssssseessessnecsensnsennesssessneeD)

United States v. Crowell, Collier & MacMillian, Inc., 361 F. Supp. 983 (S.D.N.Y. 1973).........54

United States v. Dupont & Co., 353 U.S. 586 (1957)....ssseccsesessesscrssecssnsessesssseesanessaseessneeessstessneen 36


1. It has been well established that AT&V, Matrix and CBT have all been
accepted as qualified by the majority of the LIN/LOX customer base.

2. American Tank & Vessel has won three of the four competitively bid
LIN/LOX jobs that have occurred since the acquisition for a 75% post-acquisition market share.

3. Within months of the Acquisition, AT&V won its first LIN/LOX tank bid,
a two-tank project for

4. was pleased with the price AT&V offered, because it was lower than
5. subsequently awarded AT&V another LIN/LOX tank just
6. Based in part on a positive reference from awarded
AT&V a LIN/LOX tank
7. has requested LIN/LOX budget
pricing from for a proposed project
provided the budget price received for this

project.

8. Matrix Services, began to participate in the LIN/LOX market in 1998 and
has successfully and satisfactorily competed a total of four LIN/LOX tanks.

9. Between 1998 and 2000, Matrix won (and successfully completed)
LIN/LOX tank jobs for

10. In. 2000, Matrix was awarded (and successfully completed)
a competitively bid LIN/LOX job

11. Matrix continues to actively pursue this type of work, and has
LIN/LOX projects for customers.

12. CBT has been actively submitting formal bids and budget pricing for
LIN/LOX tanks.

10



42.  Skanska/Whessoe has experience constructing double concrete tanks, but

If
such a double concrete tank design is required, qualify to submit a bid.
43. is currently considering a proposed LNG import terminal in
which will contain LNG tank.
44. has had a number of discussions with several potential EPC
candidates, including
45. believes that each of these companies is able to handle this
project, including the necessary engineering, procurement and construction.
expects to narrow this list to , and expects that it will be
able to get a good price as a result of this competitive process.
46. has pre-qualified | companies to build LNG tanks -- including
With respect
to the project in
as potential LNG tank builders. Each of these
companies submitted bids for the LNG tanks, and are "still in the running for the job...."
AT.
48.
49. has entered into an EPC agreement with to adda
LNG tank to its import terminal.
50. Prior to hiring solicited a budgetary price from
which fell within a "very reasonable range" compared to price.
Such an effort served to constrain a high price. As a result, is "very

comfortable with the price that we were getting on the tank.”

Cc. Factual Basis -- LIN/LOX


27. . solicited pricing from for a
LIN/LOX tank project in

28. initially internally priced the utilizing a profit margin of
but ultimately provided a firm fixed price bid for the project at a profit margin of in
response to competitive pressures.

29. awarded that project to in March 2002.

30. was satisfied with the price it paid for this tank.

31. is currently contemplating the purchase of a field-erected LIN tank
for a facility in

32. will competitively bid the contract and anticipates soliciting bids from

33. The low bidder will win the contract.

34. have each testified that they do

not believe prices have increased, do not believe that prices will increase, and further testified
that they are satisfied with the current level of competition.

35. In fact, testified that it believes it has more potential bidders
for pre-qualification today than it has had in the past.

36. The in the industry shares the same opinion as the customers.

does not believe that the prices of field erected LIN/LOX tanks will be affected by the

CB&I/PDM merger but rather believes that it has created opportunity for enter into the
business of field erected LIN/LOX tanks.

37. has stated that the merger of CB&I and PDM "has given us some
potential opportunities.” believes that the LIN/LOX tank remains
extremely competitive today.

38. recently competitively bid a LIN/LOX tank
which was ultimately awarded to despite the fact that lowered its price to

39. awarded a LIN/LOX project in :
, to after competitive pressure forced to reduce its original bid with a

12


2. There Has Been Substantial And Sufficient Entry In The
LIN/LOX/LAR Market.

Complaint Counsel dismisses CB&I's LIN/LOX competitors as "fringe firms."

In fact, these companies are strong competitors in the U.S. market for LIN/LOX tanks, so
strong that CB&I has lost most of the post-Acquisition business in this market. This fact
demonstrates that the Acquisition did not lessen competition.”®

(a) AT&V
AT&YV is the third-largest tank builder in the U.S. A recent customer,

has described AT&V's performance as "exceptional."
Within months of the Acquisition,

AT&V won its first LIN/LOX tank bid, a two-tank project
was pleased with the price AT&V offered,

because it was lower than the amount budgeted for the project.
AT&V has completed the project, and was very pleased with AT&V's
performance on this job. In fact, subsequently awarded AT&V another LIN/LOX tank in
just this month.

Other purchasers of LIN/LOX tanks believe that AT&V can effectively compete in this

market. Based in part on a positive reference from pre-qualified AT&V for a
LIN/LOX tank AT&V was the eventual winner of that competitively bid job,
beating out ae

26 Tn this market, Complaint Counsel's argument that foreign firms cannot effectively compete with CB&d is entirely
irrelevant, as CB&I faces fierce domestic competition.

77 In 2002, contracted with for the construction of a LIN tank in
In entered into a

In exchange for

The agreement was extended prior _—to acquisition through

When assumed the role of in the agreement, As a result of

29



number of North American LNG customers, including

LNG customers and consultants in the U.S. agree with the assessment that

Technigaz/Zachry is likely to successfully build LNG tanks on a competitive basis in the U.S.

(b) TKK/AT&V
Toyo Kanetsu K.K ("TKK"), based in Japan, is a world leader in the construction of LNG
tanks and facilities. TKK possesses unparalleled experience in the construction of double- and
full-containment LNG tanks, and has built LNG tanks in many areas of the world, including, for

example, Greece, Iran, and the Caribbean. TKK
entered the U.S. LNG market in late 2001. To aid in this effort, it forged a joint venture with

AT&V, a leading U.S. tank builder with experience in building cryogenic tanks.

The TKK/AT&V joint venture has been energetically pursuing LNG opportunities in the

US. and elsewhere in North America.

The joint venture also for the

LNG tanks associated with the and the evidence will show that it is one of the

15


Dynegy interviewed
including
After this process, Dynegy felt that
Dynegy eventually selected Skanska/Whessoe'* -- identified as a "fringe

firm" by Complaint Counsel -- over to serve as its EPC contractor for the Hackberry

Project.'*

After selecting Skanska/Whessoe as its EPC contractor, Dynegy began the process of
bidding out the LNG tank portion of this project, which Skanska would supervise. To this end,
Dynegy investigated and pre-qualified different bidders --

Dynegy asked all bidders to
submit lump-sum turnkey bids for the construction of the LNG tanks for this project.'*

Dynegy received bids from
sometime after February 1, 2002. bids met Dynegy's technical

expectations, and were within Dynegy's expected price range.

° Complaint Counsel asserts that "[s}ince 1990, and until the merged CB&I and PDM failed to bid on the Dynegy
LNG project, not one overseas firm has been successful in competing for new projects in any of the relevant
markets." This statement is false, as Skanska was awarded the EPC job for Dynegy.

“¢ Complaint Counsel dismisses Dynegy's award of the EPC contract to Skanska as somehow constituting evidence
of anticompetitive conduct because

Just the opposite is the case.
The fact that Dynegy did not have to accede to terms proves its lack of market power. See, e.g., Syufy, 903
F.2d at 670 (rejecting a merger challenge in part because of post-acquisition evidence that the one time Syufy tried
to put the squeeze on distributors "there was an immediate backlash."). Cf. In re Coca-Cola Bottling Co., 118 F.T.C.
452, 909 (1994) (pointing to evidence that "prior to the acquisition, third-party vendors had been able to resist any
attempt .. . to force a vendor to take unwanted allied brands along with the desired brands," a fact which changed
after the acquisition); The fact that Dynegy is not complaining about Skanska's performance or its pricing is proof
that CB&I's position did not cause it to accept inferior terms from Skanska. Further, business strategy pre-
dated the acquisition and thus does not represent a change in post-acquisition competition.

1s

21



international LNG tank construction business. Whessoe has constructed LNG
tanks across the globe, even in remote locations such as India, Trinidad and Algeria.

In addition to the technology it possesses to build steel-walled LNG tanks, Skanska/Whessoe is
the exclusive licensee of technology to construct LNG tanks with an inner concrete containment

as well, a technology that is favored by at least one LNG customer in the U.S. --

There is no doubt that Skanska/Whessoe has successfully entered the U.S. LNG market.

Dynegy has selected Skanska/Whessoe as the EPC contractor for the

It has also submitted budget pricing to for its proposed _peak-shaving

facility and to for its planned expansion of its

LNG customers in the U.S. agree that Skanska/Whessoe is likely to build quality LNG
facilities at a competitive price. Many customers have commented on their favorable view of

Skanska/Whessoe's reputation in this regard.

Those who have
evaluated Skanska/Whessoe's prices have found them to be competitive. Dynegy chose
Skanska/Whessoe as the winner of the bid contest for the EPC of the

evaluating =a provided by = Skanska/Whessoe,

found that it has within

17



has also requested LIN/LOX for a _ proposed
AT&V

provided the received by for this project.
28
(b) Matrix
Matrix Service Company ("Matrix") is the second-largest tank builder in the U.S. Matrix
entered the LIN/LOX market in 1998. Between 1998 and 2000, Matrix won (and successfully
completed)  LIN/LOX tank jobs for In 2000, Matrix
won (and successfully completed) a competitively bid LIN/LOX job for . Matrix

won these contracts even though it bid against more experienced competitors, such as

Matrix can engineer, fabricate, and construct any type of LIN/LOX tank that a customer
may request. Matrix continues to actively pursue this type of work,
and has for various LIN/LOX projects for

believes that the LIN/LOX tank market remains extremely
competitive.
© CBT

Chattanooga Boiler and Tank ("CBT") is a 100-year-old tank company that specializes in
the construction of steel plate storage tanks. Over the past century,
CBT has designed, fabricated, and constructed stainless steel tanks and vacuum chambers far

more complex than LIN/LOX tanks. Recently, CBT has taken steps

the
Since the continuing prevented the project from being

30


A. Timely, Substantial And Sufficient Entry Has Occurred In The LNG
Market.

Complaint Counsel relies on ancient history by focusing its analysis on the undisputed
fact that CB&I and PDM were the dominant suppliers of LNG tanks over the 10 years prior to
the Acquisition.® In order to make this ancient data relevant to post-Acquisition conditions,
Complaint Counsel attempts to dismiss the competition generated by new entrants.

Recent events directly contradict this contention. The evidence will show that five large
international LNG tank constructors have entered the U.S. LNG tank market within the past year.
These constructors are all large, wealthy, multinational companies that have significant
experience building LNG facilities worldwide, including experience working overseas with U.S.-
based customers. Further, many of these companies have established joint ventures with
domestic tank manufacturers to more quickly gain a foothold into the U.S. market.

While Complaint Counsel has chosen to characterize these entities as "fringe firms" and
“consistently . . . inferior competitive alternatives" the reality is that each
company is experienced and formidable. Each foreign entrant is actively pursuing work in the
U.S. LNG market for two reasons. First, they have identified an increased demand for LNG
tanks and facilities in the U.S. Second, they believe that the Acquisition created an opportunity
for them to win LNG projects in the U.S.

In pursuing these opportunities, each of these competitors has invested hundreds of
thousands (and in some cases millions) of dollars. Moreover, these competitors plan to invest

significant additional capital in pursuing U.S. LNG projects.

5 Specifically, Complaint Counsel stresses that Respondents supplied all of the LNG tanks in the U.S. during this
time. However, Complaint Counsel neglects to mention, during this time, demand for LNG tanks

was very low.

12


year. Thus, the cost of a loss of one large bid due to one price increase destroys Dr. Simpson's
estimates.

3. The bid process took place before the merger that formed
Skanska Whessoe and before the forming of three joint ventures, TKK-AT&V, Technigaz-
Zachry, and S&B-Daewoo, which were formed for the express purpose of competing for LNG
tank projects in the United States.

4.

IX THE REMEDY SOUGHT BY COMPLAINT COUNSEL IS INAPPROPRIATE
AND PUNITIVE

A. Legal Basis:

"The key to the whole question of antitrust remedy is to bind effective measures
to restore competition. Courts are not authorized in civil proceedings to punish antitrust
violators, and relief must not be punitive." United States v. E.I. du Pont de Nemours & Co., 366
US. 316 326 (1961). See also Grand Union, Docket No. 9121, 102 F.T.C. 812 (1983) Divesture
is a "drastic" remedy, and "cannot be had on assumptions." United States v. Crowell, Collier &
MacMillian, Inc., 361 F. Supp. 983, 991 (S.D.N.Y. 1973). Rather, there must be "factual basis
and economic theory as applied to such facts” to support such a remedy. Id. Furthermore, the
hardships that would be caused by such a remedy "can be considered in determining the
appropriate remedy for the redress of antitrust violations where something short of divestiture
will effectively redress the violation.” U.S. v. International Tel. & Tel. Corp., 349 F.Supp. 22,
31 (D. Conn. 1972).

B. Factual Basis

1. The assets that are the subject of this Complaint are a fraction of the total
value of the Acquisition, representing about $17 million of the total $83 million deal.

2. In addition, the commerce from the relevant markets at issue is a small
percentage of the revenue of the challenged assets.

3. CB&I had generated no revenues from the LNG and TVC markets over
the previous five years.

4. For example, one CEO of a customer stated that a breakup of CB&I would
"weaken a good supplier, while not reconstituting a viable alternative supplier.”

4



13. Chattanooga Boiler and Tank ("CBT") is a 100-year-old tank company
that specializes in the construction of steel plate storage tanks.

14. CBT has submitted a formal bid for LIN/LOX tanks
15, has also been pre-qualified by as a supplier of LIN/LOX tanks.

16. | Demand for field-erected LIN/LOX tanks is very low due to excess
capacity of oxygen and nitrogen production in the U.S.

17. Due to excess capacity, traditional purchasers of LIN/LOX tanks are
rarely in the market for new tanks or plants.

18. Graver Manufacturing went out of business due to an overall Jack of
demand in this tank market.

19. competitively bid and awarded LIN/LOX tanks during
2000-2001.
20. evaluated bids from and selected
because it was the
21. was satisfied with the price it paid for this project.
22. In 2002, competitively bid a LIN/LOX tank
and received bids from
23. Due to the fierce competition for this job, lowered its final bid to a
24. Despite this steep price cut, was unsuccessful -~
awarded this project to
25. In 2002, signed a letter of intent with to construct a LIN tank
26. approached because it was pleased with
, and because believed that the use of engineering documents from that job
would save costs on the job.

i

mpap

RR

——-


have enough assets or revenue to satisfy the types of financial guarantees that LNG owners now
demand. Customers have testified that the Acquisition has made them more comfortable in
accepting a parent company guarantee from CB&I.

Based on the evidence, any breakup remedy would fail to establish a competitor for
LNG jobs in the United States or, for that matter, internationally.

Fifth, a breakup makes no sense given the small size of the challenged markets. For
example, in the year prior to the Acquisition, there were no sales whatsoever in three of the four
markets, and only $5 million in sales in the LIN/LOX market. As a result, breakup is not
appropriate when $66 million of the total $84 million in purchased assets relate to the
construction of municipal water tanks, which Complaint Counsel does not challenge. Nor has
Complaint Counsel collected any evidence as to the impact of divestiture on the customers in all
the other markets that are served by CB&I but not subject to challenge in this lawsuit such as
flat-bottom tanks.

Sixth, should the Court find that the Acquisition has caused any competitive problem,
given the existing supply-side capacity of many tank constructors not currently involved in these
four markets, less "drastic" and punitive remedies are available to create even more competition
in the four product markets in this case.

As to the TVC market, although Respondents do not agree that the TVC market should
constitute a relevant antitrust market under Section 7, it has proposed a package of behavioral
constraints in the form of a proposed Consent Decree in an effort to alleviate any competitive

concems created by its acquisition of PDM assets on the TVC market

There are several components.

56



Notwithstanding the fact that sufficient competition exists in each of the four markets and
that three of the four markets have little or no demand for its products, Complaint Counsel seeks
the most draconian remedy available: the breakup of the Acquisition. ‘This remedy makes no
sense for a number of reasons, such as the fact that CB&I has lost almost every competitive bid
in the relevant markets since the Acquisition in early 2001. In addition, many customers have
testified that a breakup of CB&I into two competitors would lessen and not increase competition
by creating two smaller and weaker competitors in largely dormant markets. Further, a breakup
would reverse the many and substantial efficiencies created by the Acquisition.

Il. BACKGROUND
A. Transaction Background

In June 2000, PDM's Board of Directors retained an investment banker to sell the
company's five divisions. The Board's mandate was to obtain cash and not stock in these
transactions. In September 2000, CB&I signed a letter of intent to buy the assets of the Water
and Engineered Construction ("EC") divisions of PDM for over $90 million.> On September 12,
2000, CB&I made its HSR filing. On October 12, 2000, the HSR waiting period expired.
Nevertheless, one week later, the FTC began an inquiry.

At the request of the FTC, Respondents voluntarily delayed the closing of the transaction
for more than three months. Facing possible liquidation of the PDM-EC Division by the seller if
CB&I delayed any further, CB&I closed the transaction on February 7, 2001, four months after
the waiting period expired. The FTC could have initiated judicial action at that time, but did not
do so. On October 25, 2001, eight months after the Acquisition closed, and a year after the

investigation began, the FTC filed its Complaint.

3 CB&! initially agreed to pay $93 million for the assets of PDM's EC and Water Divisions. Due to PDM-EC's poor
performance in 2000, CB&I renegotiated the price to approximately $80 million.


(a)

2
@ CMS
Finally, CMS has entered into an EPC agreement with
Prior
to hiring CMS solicited a budgetary price from which fell within a "very

reasonable range" compared to

Such an effort served to constrain a high price. As a result,

B. Timely, Substantial and Sufficient Entry Has Occurred In The LIN/LOX
Market.

Despite the low post-Acquisition demand in the U.S. for LIN/LOX tanks,” AT&V -- a

market entrant -- has been awarded three out of the four competitively bid

2

* LIN/LOX storage tanks are constructed in conjunction with plants known as air separation facilities. An air
separation facility liquefies air by cooling it to several hundred degrees below Fahrenheit, and then distilling the air
into its component parts. The end-result is the production or distillation of industrial gases
such as oxygen, nitrogen and argon; which may either be used on-site or stored in tanks so that the gases can be
available to the marketplace for sale. Not all air separation plants require LIN/LOX
tanks. If the purpose of the facility is to liquefy the air and store large quantities of its
component parts, then it may require a field-erected LIN/LOX storage tank. Construction

27



6. Since the Acquisition, CB&I has lost LIN/LOX projects for > one
LIN/LOX project for >
and lost LNG bid to . (See supra at 12-34.)

7. CB&I has won only one competitively bid LIN/LOX job since the
Acquisition and LNG tank for

8. PDM has not built an LNG tank in the U.S. since 1992; CB&I has not
built a TVC in the U.S. since 1984; and prior to the Acquisition, CB&I had not built an LPG tank
in the US. since prior to 1996.

IV. TIMELY, SUBSTANTIAL, AND SUFFICIENT ENTRY DEMONSTRATES
THAT THE ACQUISITION DID NOT SUBSTANTIALLY LESSEN
COMPETITION IN THE RELEVANT MARKETS

A. Legal Basis

1. Proof of low barriers to entry is one type of evidence which rebuts a prima
facie case. It is settled that "where entry barriers are low, market share does not accurately
reflect the party's market power." United States v. Syufy Enterprises, 903 F.2d 659, 665 (9th
Cir. 1990). See also United States v. Waste Management, Inc., 743 F.2d 976, 982 (2d Cir. 1984)
(stating that under General Dynamics "a substantial existing market share is insufficient to void a
merger where that share is misleading as to actual future competitive effect," and the
government's Merger Guidelines state that ease of entry is relevant to appraising the impact upon
competition of a merger and may override other factors); F.T.C. v. Cardinal Health, 12 F. Supp.
2d 34, 54-55 (D.D.C. 1998) ("Even in highly concentrated markets, if there is sufficient ease of
entry, enough firms can enter to compete with the merging firms, undercutting any likely anti-
competitive effects of the proposed merger. ... A court's finding that there exists ease of entry
into the relevant product market can be sufficient to offset the government's prima facie case of
anticompetitiveness"); Grand Union Co., 102 F.T.C. 812 (1983) (High concentration levels "can
occur with high, moderate or low entry barriers and do not necessarily indicate that high entry
barriers exist.")

2. Ease of entry is established by evidence of timely, likely and sufficient
entry. See generally FTC v. Cardinal Health, Inc., 12 F. Supp. 2d 34 (D-D.C. 1998). Entry is
timely if it takes place within approximately two years. See United States v. Syufy Enterprises,
903 F.2d 659, 666 (9th Cir. 1990). Entry is likely and sufficient if "ease of entry in the market is
such that the procedures in the market could not long sustain an unjustified price increase."
United States v. Calmar, Inc., 612 F. Supp. 1298, 1301 (D.N.J. 1985); see also Baker Hughes,
908 F.2d at 989 (entry is sufficient where it "would likely avert anticompetitive effects from . . .
the acquisition . . . ."); Grand Union Co., 102 F.T.C. 812 (1983) ("Evidence of low entry barriers
includes recent entry into the target market, or recent capacity expansion by existing competitors
in the market and clearly tilts the balance against the legal presumption raised by concentration
levels alone.”).

3. Entry does not have to be "easy" to be likely and sufficient. Baker
Hughes, 908 F.2d at 987-988. In addition, Respondent's evidence of entry does not have to be


; one of the largest, most respected construction companies in the U.S.

3. The joint venture has been hotly pursuing several LNG
opportunities in the U.S. and Mexico.

4. LNG customers and consultants in the U.S. agree with the assessment that
is likely to successfully build LNG tanks on a competitive basis in the U.S.

6. also submitted a formal bid for the LNG tanks
, and the evidence will show that it is
finalists. The has
also submitted formal bids and/or budgetary pricing on several other U.S. LNG projects.

7. Customers have concluded that TKK/AT&V is a formidable new
competitor to CB&I in the U.S. market for LNG tanks and facilities.

8 believes that bid on the -
the -- met all technical expectations and was within
expected price range.

9. -- has recognized that the

is "very interested in getting into the domestic market" and has solicited and received a
satisfactory budgetary quote from

10. | Skanska/Whessoe is the largest construction group in the world. Its U.S.
subsidiary is the fourth Jargest contractor in the U.S.
Whessoe has constructed LNG tanks across the globe, even in remote locations such as India,
Trinidad and Algeria.

11. Skanska/Whessoe is the exclusive licensee of technology to construct
LNG tanks with an inner concrete containment as well, a technology that is favored by

12. Dynegy has selected Skanska/Whessoe as the EPC contractor for the
Hackberry Project.



13. has submitted budget pricing to for its
proposed facility and to for its planned

14. LNG customers in the U.S. agree that Skanska/Whessoe is likely to build
quality LNG facilities at a competitive price. Many customers have commented on their
favorable view of Skanska/Whessoe's reputation in this regard.

15. Dynegy chose Skanska/Whessoe as the winner of the bid contest for the
EPC of the Hackberry Project.

16. | Daewoo/S&B, a Korean multinational corporation, has built 12 LNG
storage tanks in Korea since 1993. Daewoo has become the
"dominant contractor” in the design and construction of LNG terminals in Korea, the world's
largest importer of LNG. Daewoo entered the U.S. LNG market this year. To assist it
in this regard, Daewoo forged an alliance with S&B Engineers & Constructors ("S&B"), based in
Houston, Texas.

17. Earlier this year, made efforts to bid to on the
: It is currently pursuing an LNG import terminal
for

18. was recently retained by to
prepare preliminary tank designs and engineering in connection with its FERC application, and is
currently being considered as a candidate to build the tanks for that facility.

19. Customers believe that is a competitive force in the U.S.
market for LNG facilities. and others believe that the joint venture has the requisite
experience and capability to build these tanks, and will consider it for future LNG work.

20. Tractebel, a large Belgian company, has entered the U.S. LNG market
since the Acquisition.

21. and have had negotiations
about , based on confidence in
ability to build LNG tanks in the U.S.

22. recently bid on an LNG import terminal .
In light of its is selling the land and development
plans for this project. is attempting to buy the land and build

the terminal with an eye on establishing itself in the U.S. market.


In the planning stages, Cheniere has engaged some of the so-called "fringe firms"
identified by Complaint Counsel. In December of 2001, Cheniere hired to
conduct preliminary engineering and design work on its LNG project.

In the summer of 2002, Cheniere hired assist it in preparing its
permitting application to FERC by providing detailed LNG tank drawings and other logistical
support. When Cheniere solicits formal bids for the EPC contract on
this job, Cheniere plans to consider

Importantly,

with respect to the U.S LNG market, Cheniere is confident that

(e) Yankee Gas
Yankee Gas is planning to construct an LNG peak-shaving facility in Waterbury,
Connecticut. The Waterbury
facility will include a two billion cubic foot LNG tank. The

cost of the Waterbury facility is

Yankee Gas has retained the services of CHI Engineering to perform front-end

engineering and design work for this project. Representatives of
Yankee Gas had face-to-face negotiations with In addition, Yankee Gas has
teceived

While Yankee Gas has not yet reached the point of securing final firm price bids, it

is considering inviting

24


18. is not really a new entrant to the market.

19. also testified that XL Systems and its
subcontractor, Votaw, are currently fabricating two 15-foot field-erected TVCs.

20. | IMCO/Howard entered the field-erected TVC market in 2001 by forming
a consortium of industry participants.

21. | IMCO/Howard entered the market after Howard had received a bid
request from for a large TVC project.

22. This consortium is as qualified to build field-erected TVCs as CB&I
because its personnel include many industry veterans, and based on its experience, potential
customers would consider using IMCO/Howard if demand returns.

23. The main customers for field-erected thermal vacuum chambers are large
companies such as

24. These companies have the financial resources to sponsor a new entrant.

For example, in the chose over to build an
expensive and sophisticated even though had never built
such a structure before.

Vv. THE ACQUISITION GENERATED SIGNIFICANT EFFICIENCIES

A. Legal Basis:

Merger-specific efficiencies are defined as those unlikely to be accomplished in
the absence of either the proposed merger or another means during a comparable time frame.
Merger Guidelines § 4.0, See also FTC v. H.J. Heinz Co., 246 F.3d 708, 721 (D.C. Cir. 2001)

B. Factual Basis:

1. The Acquisition has generated merger-specific and cognizable
efficiencies, and that these efficiencies have resulted in lower costs to consumers and improved
CB&I's ability to compete in the world market for cryogenic tanks.

2. Merger-specific efficiencies are defined as those unlikely to be
accomplished in the absence of either the proposed merger or another means during a
comparable time frame. They must be verified, and not automatically accepted as a result of

16



This case involves radically different views of post-acquisition market conditions for four ,
products sold by Respondent Chicago Bridge & Iron Company ("CB&I"). Respondents intend
to show that there has been timely, substantial and sufficient entry in these markets the nearly
two years since CB&I's acquisition of Pitt-Des Moines, Inc.'s ("PDM") EC and Water Divisions
("Acquisition") closed, thus proving that these markets are vibrantly competitive today, and that
the Acquisition has not substantially lessened competition. In contrast, Complaint Counsel looks
back ten years to show how the market had performed prior to the Acquisition, and relies on
alleged post-Acquisition conduct selectively chosen from the discovery record. Complaint
Counsel's perspective necessarily ignores the impact of the recent substantial and sufficient
entry. CB&I's competitors have successfully entered three of the four relevant markets since -
February 2001, and the fourth market, thermal vacuum chambers, has been dormant for many
years because it is overbuilt. The law is clear that this evidence of sufficient entry rebuts

Complaint Counsel's attempt to prove their prima facie case. United States v. Baker Hughes.

908 F.2d 981 (D.C. Cir. 1990); United States v. General Dynamics Corp., 415 U.S. 486 (1974).

Respondents also intend to show that PDM-EC's assets were going to be liquidated absent the
Acquisition, and that there were merger-specific and cognizable efficiencies gained from the
transaction. Further, Respondents will demonstrate that Complaint Counsel relies on expert
testimony that is based on misapplied economic theories and false and misleading testimony.

I. SUMMARY OF THE ARGUMENT

Complaint Counsel's Trial Brief (referred to herein as "FTC Br.") is more remarkable for
what it does not say. Complaint Counsel dismisses new LNG entry with the shorthand term
"fringe" without mentioning that, since the Acquisition, six large multi-billion-dollar,

multinational competitors have entered the U.S. market for LNG tanks, import terminals and


253

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

United States v. General Dynamics Corp., 415 U.S. 486 (1974) w.esssssesscceeereneeeccneeeeeeeeel, 8, 10
United States v. International Harvester Co., 564 F.2d 769 (7th Cir. 1977)

United States v. M.P.M., Inc., 397 F. Supp. 78 (D. Colo. 1975) 7, 8, 41

United States v. Sungard Data System, Inc., 172 F. Supp. 2d 172 (N.D. Ill. 2001)... L

United States v. Syufy Enterprises, 903 F.2d 659 (9th Cir. 1990) wees 8, 9, 10, 21, 34
United States v. Waste Mgmt., Inc., 743 F.2d 976 (2d Cir. 1984) ....seseecsestscesnesccrenneseersenseeseesnseee8
FEDERAL STATUTES

Clayton Act, Section 7

15 U.S.C. §18 sod
Federal Trade Commission Act, Section 5

OTHER AUTHORITIES

D. Scheffman, Director of Bureau of Economics, F.T.C., Sources of Information and

Evidence in Merger Investigation, June 14, 2002... 1220
USS. Dept. of Justice & Federal Trade Comm., Horizontal Merger Guidelines (1992,

rev'd 1997) s+. passim
John E. Kwoka, Jr. & Frederick R. Warren-Boulton, Efficiencies Failing Firms, and

Alternatives to Merger: A Policy Synthesis, 31 Antitrust Bull. 431

(1986) sossesssscessuscesvecesseccenecenseensaeesennes ae 9



More importantly, those customers who are currently planning LNG projects in the
United States -- many of whom have significant experience with these competitors from LNG
projects abroad -- consider these competitors to be experienced, qualified and capable of offering
competitive prices. In light
of this compelling evidence, Complaint Counsel's focus on historical sales data predating the
merger is wholly irrelevant because that historical data cannot accurately account for the
competitive impact of these new firms.

1. Six Foreign Competitors Have Sufficiently Entered The U.S. Market
To Construct LNG Tanks And Facilities Since The Consummation Of
The Acquisition.

Complaint Counsel repeatedly argues that the LNG geographic market is limited to the
United States. Regardless of the geographic market advanced by Complaint
Counsel, the fact remains that the U.S. is a small portion of a global marketplace, a fact
confirmed by LNG customers.

This
perspective is critical to understanding competition for LNG tanks and facilities in the U.S.

Due to recent changes in domestic energy markets, U.S. customers have, for the first time

in more than a decade, dramatically increased their demand for LNG storage facilities.

For example, Dynegy is currently planning to build the
largest LNG import terminal in the U.S. in Hackberry, Louisiana. A
variety of other customers are currently in the process of planning LNG storage and peak-

shaving facilities.

13


Complaint Counsel fails to mention that, of those four projects, AT&V has been awarded three.
CB&I has been awarded but a single LPG contract in the last eight years. In fact, sales in this
market are so rare that competition in the LPG tank market is legally insignificant.

Complaint Counsel's argument regarding the anticompetitive effects of the Acquisition is
most suspect in the Thermal Vacuum Chamber ("TVC") market. There has been virtually no
demand for TVCs in the past five years and CB&I has not even built a TVC in nearly 20 years.
CB&I is prepared to address any competitive concerns in this dormant market with a
competitively meaningful consent decree.

Respondents also intend to show that Complaint Counsel cannot meet its prima facie case
because it has artificially inflated the HHI concentration statistics by including sales going back
12 years to 1990. Selecting the start date for the HHI calculation at 1996 through the Acquisition
results in a change of zero in three of the four identified markets.” Five years is a more than
amply sufficient period in which to measure concentration.

Finally, Respondents intend to show that, absent the Acquisition, PDM's EC Division
would have been liquidated. Complaint Counsel's insistence that there theoretically might have
been another purchaser ignores the professional percipient judgments of PDM's management and
its investment banker, as well as the unique facts under which PDM-EC was being sold: the
largest shareholder -- PDM's founding family -- had ordered all five divisions of the company
sold posthaste in order to unlock the value of PDM's illiquid, thinly traded stock. The sale of
PDM was ordered in a year when it was losing $30 million, which was more than its liquidation
value. Respondents' evidence will demonstrate that liquidation was a real-world business reality,

as compared to Complaint Counsel's theoretical academic argument.

? Bven in Complaint Counsel's 12-year HHI measurement, the change in HHls in the TVC market is still zero since
CB&I has not built a TVC in the U.S. since 1984.


5.
, testified that if as a result of a breakup "CBI was
weakened enough so it couldn't compete with the outside international players, then it would
have some impact by weakening the major U.S. player at this time.”

6. At any given time, CB&I's Industrial Division has about 300 tank projects
pending in various stages.

7. , LIN/LOX tank customers, would be
concerned if a CB&I breakup occurred while CB&I was constructing atank for them.

8. LNG customers have also commented that a breakup would be disruptive.

9. would scrutinize
the financial status of any new owner of PDM to determine whether it would able to make the
parent company guarantee. further noted that he would not want to work with a company
any smaller than CB&I.

10. | PDM was already losing business due to concerns related to PDM's
financial status.

11. Customers have testified that the Acquisition has made them more
comfortable in accepting a parent company guarantee from CB&I.

12. For example, in the year prior to the Acquisition, there were no sales
whatsoever in three of the four markets, and only $5 million in sales in the LIN/LOX market.

13. Breakup is not appropriate when $66 million of the total $84 million in
purchased assets relate to the construction of municipal water tanks, which Complaint Counsel
does not challenge.

14. Complaint Counsel has not collected any evidence as to the impact of

divestiture on the customers in all the other markets that are served by CB&I but not subject to
challenge in this lawsuit, such as flat-bottom tanks.

25


divisions and their shared resources, and therefore recommended selling them together as one
unit.

5. At the time PDM's board committed to sell the assets, the PDM-EC
Division's profitability had dropped more than 18.3% from 1999 to 2000, resulting in a loss that
was initially estimated to be $8.9 million.

6. In March 2001, the EC Division was forced to take additional write-downs
on certain projects, and its actual EBIT loss for fiscal year 2000 was approximately $30 million.
There were no signs that the EC Division's business was improving
after 2000.

7. PDM's management determined that, because of these losses,
it was unlikely that another purchaser would emerge. They decided that if the CB&I deal did not
close, they would simply liquidate the EC Division.

8. In December 2000, at a time when it looked like the CB&I deal might fall
apart because of a disagreement over commercial terms, PDM management went so
far as to draw up a plan of liquidation for the EC-Division. Similarly, a February 2001 analysis
prepared by analyzed liquidation of the EC Division if the deal did not close and opined
that if the Water and EC divisions could not be sold together, "a reasonable buyer may not be
found and a liquidation of the business may be the most effective resolution.”

9. According to PDM's estimated liquidation value was between $14
and $31 million; CB&I paid an estimated $17 million for the EC Division assets.

10. No other purchasers were interested and/or able to purchase PDM's EC
assets. Foreign companies were not interested in purchasing the EC Division's assets and made
no inquiry to suggest such an interest.

11. No financial investor was interested because "it would have been a very
difficult and probably impossible sale" for a financial based buyer to buy a company that is
losing $9 million (and later $30 million.)

12. The only passing interest in the EC Division came from
Matrix was not a viable purchaser because it was only interested in purchasing PDM's EC
Division, a plan that was contrary to the wishes of PDM and the advice of its consultants.

13.

18


3. Some small TVCs must be field-erected because they can only fit into the
customer's building by being shipped in pieces instead of whole.

4. The steps taken in the design, procurement, fabrication and field-erection
processes are identical for both cryogenic storage tanks (including TVCs) and conventional flat-
bottom storage tanks.

5. Complaint Counsel's historical sales data show that CB&I has not
constructed a single TVC since 1984, when it exited the market.
6. CB&I's exit left PDM as the only competitor for field-erected TVCs in the
US. from 1984 until 1997.
7. CB&I attempted to reenter the TVC market in 1997 by acquiring XL
Systems ("XL"), but has not built a field-erected TVC since its reentry.

8. CB&I acquired XL

9. CB&I has subsequently sold XL

10. When CB&I sold XL, CB&I lost the ability to manufacture thermal
shrouds, TVCs or cryogenic pumps for TVCs.'

11. Given the dormant market, the change in the HHI for field-erected TVCs
as a result of the CB&I merger is zero, which means Complaint Counsel cannot establish a
statistical prima facie case.

12. The satellite industry has excess capacity in its existing TVCs.

13. Most satellite manufacturers already have one or more of these chambers,
which have long lifespans. uses a TVC built and uses one built

14. Only two field-erected TVCs have been built in the U.S. since 1990.
(Harris Rpt. 150.)

15. | Demand for TVCs is in further decline for two reasons. First, demand for
commercial and government satellites is nearly non-existent.

21


(e) Tractebel
Tractebel SA (""Tractebel"), a large Belgian company, has entered the U.S. LNG market
since the Acquisition. Specifically, Tractebel and
havehad negotiations = about
based on confidence in ability to
In addition, Tractebel recently bid on an LNG import terminal
In light of is selling the land and development
plans for this project. is attempting to buy and
with an eye on establishing itself in the U.S. market.
@ MHI
Mitsubishi Heavy Industries ("MHI"), a Japanese conglomerate, is poised to enter the
U.S. LNG tank and facility market, having built 36 large LNG storage tanks in diverse
international locales. MHI has a permanent presence in many locations
around the world, including the United States. MHI is beginning to enter the North American
market for LNG facilities. It is currently competing against CB&I for a project in
andis discussing work in the U.S. with
Moreover, customers believe that MHI has the capability to construct similar projects in

theU.S. at a competitive _ price.

2. The Presence Of Foreign Competition Has Been Timely, Substantial
And Sufficient.

It is beyond dispute that the Acquisition of PDM by CB&I did not lessen competition in
the U.S. market for LNG facilities. The evidence will show that CB&I's competitors in this

market have been able to win a large share of current LNG work. The evidence will also show

19



PUBLIC RECORD

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of
CHICAGO BRIDGE & IRON COMPANY N.V.,
a foreign corporation,

CHICAGO BRIDGE & IRON COMPANY,

a corporation, Docket No. 9300
and
PITT-DES MOINES, INC.,

a corporation.

Nee SS SS SS SH SES EL

PRETRIAL BRIEF OF RESPONDENT CHICAGO BRIDGE & IRON



Second, satellite sizes are shrinking, rendering the large, field-erected TVCs
obsolete.

16. Smaller shop-erected TVCs -- which CB&I does not make -- should be
adequate to test satellites in the future.

17. Industry participants expect that the low level of demand, driven even
Jower by consolidation of the aerospace industry and the miniaturization of satellites, will
ultimately cause the number of TVC suppliers to shrink to one.

18. not really a new entrant to the market.

19. contract manager also testified that

20. | IMCO/Howard entered the field-erected TVC market in 2001 by forming
a consortium of industry participants.

21. | IMCO/Howard entered the market after had received a bid request
from for a large TVC project.

22. This consortium is as qualified to build field-erected TVC's as CB&I
because its personnel include many industry veterans, and based on its experience, potential
customers would consider using IMCO/Howard if demand returns.

23. The main customers for field-erected thermal vacuum chambers are large
companies such as Boeing, Northrup Gumman (which just acquired TRW), Raytheon and
Lockheed Martin.

24. These companies have the financial resources to sponsor a new entrant.
For example, in the fall of 2001, Boeing chose Puget Sound Fabricators over CB&I to build an
expensive and sophisticated 80 foot diameter vacuum sphere even though PSF had never built
such a structure before.

25. Alternatively, customers are not necessarily concerned about the

experience level of vendors for TVC’s. For instance, for the
bidding of its thermal vacuum chamber project even though had not constructed a thermal
vacuum chamber

22


stock, which was insufficient to meet the liquidity goals of PDM's major shareholder.

While the sale of PDM's EC Division does not technically mect the standard of the
"failing company" defense, Respondents respectfully submit that they do meet the standard for
the "exiting assets" defense, a variation of the failing firm defense identified by the Ninth Circuit
in Olin, which noted that "the key element of such a defense is proof that, without the merger,
the assets owned by the acquired firm would shortly be leaving the market." 986 F.2d at 1307

(emphasis added) (quoting John E. Kwoka, Jr. & Frederick R. Warren-Boulton, Efficiencies.

Failing Firms, and Alternatives to Merger: A Policy Synthesis, 31 Antitrust Bull. 431, 445-46

(1986)).

This Court should apply the "exiting assets" defense in this case. The evidence will show
that PDM's EC Division lost $30 million in a short period of time and had no chance for a
successful reorganization, both because business was not likely to improve and because PDM
would not have continued to operate the EC Division or any of its other divisions. Having
conducted a reasonable good faith search for potential buyers, PDM's management agreed that
its EC assets would have been liquidated if the Acquisition had not been completed. That
decision is far from self-serving as it was reached two months before closing at a time when
management viewed the CB&I deal as shaky. PDM's management had a duty to maximize
revenue from selling the EC assets (and the investment banker, paid on commission, had a
similar incentive), and they determined that liquidation was the way to accomplish that goal.

Thus, there is no factual dispute that the assets of PDM's EC Division would have been

liquidated if not sold and that CB&I was the only purchaser. Under Olin, Respondents have met

42


Since 1990, there has been little demand for LNG facilities in the U.S. No LNG tanks
have been constructed since 1996. Between 1990 and 1996, only two other peak-shaving
facilities were constructed and no import terminals were built. Since the Acquisition, customers
have shown a renewed interest in constructing such facilities based on industry demand issues
such as the energy market in California. Customers for these tanks are sophisticated
multinational companies involved in the oil, gas and chemical industry, such as Dynegy, Shell,
El Paso Corporation ("El Paso"), and others. These customers have significant experience
purchasing these tanks in the world market from a wide variety of international competitors,

including CB&I. A photo of a typical LNG tank is attached.

LIN/LOX tanks are used by air separation companies to separate air into its various
components of oxygen, nitrogen and argon and then to sell the component gases to end users.
The typical LIN/LOX tank costs between $750,000 and $1.5 million. The demand for these
tanks is low, with an average since 1999 of four contracts per year. Customers do not foresee an
increase in demand for these tanks and believe that the industry is overbuilt. A photo of a typical
LIN/LOX tank is attached.

LPG tanks are large flat-bottom tanks with a double wall that permits the refrigeration of
gases such as propane. LPG tanks are not complex structures, and companies who make basic
flat-bottom tanks can construct them. There is little demand for field-erected LPG tanks in the
US. Since 1998, only four LPG tanks have been awarded in the U.S. A photo of a typical LPG
tank is attached.

TVCs are large cylindrical facilities used to test satellites prior to launch to ensure that

they survive the extreme temperatures of space. CB&I has not constructed a TVC since 1984,



The assets that are the subject of this Complaint are a fraction of the total value of the
Acquisition, representing about $17 million of the total $83 million deal. In addition, the
commerce from the relevant markets at issue is a small percentage of the revenue of the
challenged assets. CB&I had generated no revenues from the LNG and TVC markets over the
previous five years.

B. Factual Background

At issue in this case are: 1) liquefied natural gas ("LNG") storage tanks which store
natural gas at a very low temperature which allows it to be stored in liquid form; 2) cryogenic
liquefied nitrogen, oxygen and argon ("LIN/LOX") tanks which store these gases in liquid form;
3) liquefied petroleum gas ("LPG") tanks, which store gases such as butane, propane and
butadiene at a refrigerated temperature in liquid form; and 4) thermal vacuum chambers
("TVCs"), which are used to test satellites.

The design for all of the relevant products has changed little in the last 50 years and is
similar to the design of flat-bottom industrial storage tanks that are used to store chemicals and
petroleum. All of these tanks (including flat-bottom) are fabricated and constructed using the
same or similar methods. Every company that constructs basic flat-bottom storage tanks has a
fabrication shop and personnel as well as migratory field crews who are paid hourly and who
assemble the fabricated pieces at the customer's location using cranes and other equipment.

LNG tanks are incorporated into facilities known as "import terminals" or "peak-shaving
plants." LNG import terminals cost hundreds of millions of dollars to construct, with the LNG
tanks constituting approximately one-third of the total cost. An LNG peak-shaving facility is a

smaller facility using smaller LNG tanks.


compete with the outside international players, then it would have some impact by weakening

the major U.S. player at this time."

Third, Complaint Counsel's proposed remedy of complete divestiture presents
innumerable practical and logistical problems, making it impossible to implement. The evidence
will show that, at any given time, CB&I's Industrial Division has about 300 tank projects
pending in various stages. Labor on each project must be split up, and CB&I and the divested
entity must both have experienced workers to round out the requirements for each product line.
This presents enormous logistical problems as recognized by customers. Both
and LIN/LOX tank customers, would be concerned if a CB&I breakup occurred while

CB&I was constructing a tank for them.

Fourth, any newly formed entity would have to be large enough to provide the corporate
guarantees required for LNG and TVC tank projects today. a project manager for
testified that he would scrutinize the financial status of any new owner of PDM to determine
whether it would able to make the parent company guarantee. He further noted that, at this point,

he would not want to work with a company any smaller than CB&I.

The

evidence will show that a new competitor created from just the tank business of CB&I would not

55


Smaller shop-erected TVCs -- which CB&I does not make -- should be adequate to test satellites
in the future. 36 Industry _ participants
expect that the low level of demand, driven even lower by consolidation of the aerospace

industry and the miniaturization of satellites, will ultimately cause the number of TVC suppliers

to shrink to one. CB&I's Acquisition has thus had no competitive significance

in the TVC market.

2. Competition Exists If Customers Choose To Utilize It.

Moreover, the evidence will show that Howard Fabrication has entered the TVC market.
Although Howard's prior experience is primarily with smaller shop-erected projects, it entered

the field-erected TVC market in 2001 by forming a consortium of industry participants called

IMCO/Howard. 37 IMCO/Howard _ entered

the market after Howard had received a bid request
This consortium is as qualified to build field-erected TVCs as CB&I because its
personnel include many industry veterans. Based on its.experience, potential customers would

consider using IMCO/Howard if demand returns.

* The line between field-erected and shop-erected chambers is blurred. Many companies delineate this distinction
by chamber size. For example, one prominent competitor in the industry believes that shop-erected TVCs are those
that are less than 15 feet in diameter, and the ficld-erected chambers are larger than that in weight, diameter, or
length. The main difference between the two categories is the need to have a field crew
with the equipment to align the pieces of steels together in the field. Thus, some small TVCs
must be field-erected because they can only fit into the customer's building by being shipped in pieces instead of
whole. Many companies are able to field-
erect alarge TVC, including Matrix. The steps taken in the design, procurement,
fabrication and field-erection processes are identical for both cryogenic storage tanks (including TVCs) and
conventional flat-bottom storage tanks.

” is not really a new entrant to the market.

Likewise, also testified that XL Systems and are currently
fabricating Thus, entry has occurred in the TVC
market.

38


14. could have at best offered sufficient consideration in the form of
stock, which was insufficient to meet the liquidity goals of PDM's major shareholder.

VII. THERE ARE NO SIGNIFICANT ENTRY BARRIERS AT ISSUE

A Legal Basis

Actual entry of competitors is dispositive of the question of whether entry barriers
exist. See In re Grand Union Co., 102 F.T.C. 812, 1983 F.T.C. LEXIS 61, at *529 (July 18,
1983).

B. Factual Basis -- LNG
1. Subcontracting is not an entry barrier. In fact, subcontracting portions of

an LNG project can actually lower costs. CB&I often
subcontracts portions of an LNG job, as do its competitors.

2. Fabrication is not an entry barrier. Fabrication is routine, and can be
easily performed. Further, foreign LNG tank builders can do the
necessary fabrication. In some cases, these builders can fabricate steel overseas more cheaply
than in the U.S. If fabrication were an entry barrier, foreign entrants

would not waste their money attempting to enter the U.S. market.

3. FERC is not an entry barrier. Dynegy and Chenicre have used
Skanska/Whessoe and , tespectively, to perform the tank portion of the FERC

application.

4. Reputation is not an entry barrier. Virtually all current customers believe
that the foreign entrants have excellent reputations for building LNG facilities, and that they can
build those facilities in the U.S.

3. Lack of experience in building LNG tanks in the U.S. is not an entry
barrier. Customers do not require that foreign tank companies have previous experience building
LNG tanks in the United States.

Cc Factual Basis -- LIN/LOX
1. Subcontracting is not an entry barrier. Subcontracting can often lower a
contractor's costs. Construction of a LIN/LOX tank is easily

subcontracted. Like all builders
of LIN/LOX tanks, CB&I subcontracts portions of those jobs.

19


(g) EI Paso
El Paso, a leading provider of natural gas services in North America, is currently
developing three land-based LNG terminals in North America: (1) the Rosarito terminal in Baja
California, Mexico; (2) the Altamira terminal in Altamira, Mexico; and (3) the Bahamas terminal
on Grand Bahamas Island. El Paso corporate website at
http://www.epenergy.com/about/ (visited Aug. 23, 2002)). In addition, El Paso's utility business

is currently expanding

For the Altamira project, El Paso has pre-qualified

including

With respect to the Rosarito project in Baja California, El Paso pre-qualified

Each of these companies submitted bids for the LNG tanks, and are "still in the running for
the Rosarito job...."

In short, El Paso is investing over in the above facilities. It is permitting these
companies to bid on these jobs and expects that they can perform the job if successful, whether
or not they are located inside or outside the U.S

EI Paso does not believe that the Acquisition of PDM by CB&I will

21

21 This type of evidence is in stark contrast to evidence cited by Complaint Counsel. In claiming that "customers are
willing to pay a higher price to obtain a more reputable supplier," Complaint Counsel fails to cite a single current or
former customer. Instead, they cite an industry consultant who often acts as a
competitor to and who has -- for a variety of reasons -- a bias against

26



their burden to establish that but for the merger, these assets would have exited and that CB&I

was the only available buyer.
The failing firm defense similarly requires that:

First, the proponent of the acquisition must show that the company
to be acquired is in imminent danger of failure. Second, the failing
company must have no realistic prospect for a successful
reorganization. Third, the proponent must demonstrate that there
is no viable alternative purchaser. In order to satisfy the third
criterion, the proponent of the acquisition must demonstrate that it
has made a reasonable, good faith attempt to locate an alternative
buyer.

Dr. Pepper/Seven-Up Cos., Inc. v. FTC, 991 F.2d 859, 864-65 (D.C. Cir. 1993) (internal

citations omitted). Given that PDM was committed to selling all five of its divisions, there was
no prospect PDM would have continued to operate its EC Division. (Byers Tr. 131:19-24.)
Courts have recognized that an acquired firm's weak financial condition is highly relevant. See

also FTC v. Great Lakes Chem. Corp., 528 F. Supp. 84, 87 (ND. III. 1981) ("The competitive

weakness of one of the two merging parties goes to the heart of the Government's statistical
prima facie case and warrants a finding that no substantial lessening of competition is likely to
occur in any market without reaching the issues of geographic and product markets.").°° In sum,
PDM-EC's poor financial condition in the year prior to the Acquisition and its imminent
liquidation absent the Acquisition demonstrate that CB&I's purchase of PDM's assets did not
substantially lessen competition.

B. The Acquisition Generated Merger-Specific And Cognizable Efficiencies.

The evidence will show that the Acquisition has generated merger-specific and

cognizable efficiencies, and that these efficiencies have resulted in lower costs to consumers and

» See also U.S. v. International Harvester Co., 564 F.2d 769, 773 (7th Cir. 1977) (acquired firm's “weakness
as a competitor" was "precisely the kind of information into which the Supreme Court in recent cases has mandated

an inquiry").

43


to bid on the EPC contract for this project.

19
In addition, it appears that some of these foreign companies may have a specific

competitive advantage to CB&I on this project. Local safety requirements may require
to build an double-containment LNG tank.
has experience constructing
tanks, but has never built such tanks

If such a tank is required, may not

qualify to submit a bid.

®

20

may well become a potential bidder against as an EPC contractor for the facility.
will likely use along
with its concrete tank technology, to design and build the LNG tank for the facility.
also believes that local union labor will physically erect the tank, managed by

25



IN CAMERA

EXHIBIT
B

fe1VOa1 SLvLS-TTY,


peak-shaving facilities. Nor does Complaint Counsel mention that this market, which was
dormant until recently, is a small portion of a competitive global market. The new entrants are
far from "fringe" players and include foreign construction companies who have a wide range of
experience working for U.S.-based petrochemical companies on LNG projects abroad. These
LNG tank and facility competitors represent some of the world's largest construction companies
who regularly compete against (and beat) CB&I on international projects. These competitors
have successfully entered the U.S. and North American markets because the LNG tank market is
no longer divided solely between two U.S. competitors, as it was before the Acquisition. Recent
post-Acquisition LNG competition proves the vibrant nature of competition in this market. For
example, Dynegy Midstream Services ("Dynegy") recently accepted for the largest
LNG terminal in the U.S. Similarly, just last week,
1

Sufficient entry has also occurred in the U.S. market for LIN/LOX tanks. Complaint
Counsel fails to mention that, despite the low demand for this product given an overbuilt
industry, three out of four competitively bid post-Acquisition projects have been awarded to a
recent entrant, American Tank & Vessel ("AT&V"), the third-largest tank company in the U.S.
Given AT&V's current 75% post-Acquisition market share, coupled with customer satisfaction
with AT&V's pricing and quality, Complaint Counsel's characterization of AT&V as a "fringe"
competitor is false.

Similarly, sufficient entry has occurred in the LPG tank market. The market demand for

LPG tanks is so low that since 1999 there have been only four LPG projects sold in the U.S.

' Further, Complaint Counsel fails to note that these five multinational construction giants are viewed as qualified,
capable and cost-competitive by the vast majority of the customer base.



two The joint venture has also
submitted formal bids and/or budgetary pricing on several other U.S. LNG projects.
In addition, representatives of the joint venture have made

numerous sales calls to other U.S. customers and have prepared formal marketing materials.

Customers have concluded that this joint venture is a formidable new competitor to

CB&I in the U.S. market for LNG tanks and facilities.

Specifically, believes that
TKK/AT&V's bid on the - met all
technical expectations and was within expected price range.

Further, is confident that the joint venture has the reputation necessary to construct the
is capable of doing the necessary fabrication and field erection work on the
and will be able to manage the actual construction of the LNG tanks for the

Likewise, another LNG tank customer --

-- has recognized that the joint venture is “very interested in
getting into the domestic market" and has solicited and received a satisfactory budgetary quote
from TKK/AT&V

(c) Skanska/Whessoe
Skanska AB ("Skanska") is the largest construction group in the world. Its U.S.

subsidiary is the fourth largest contractor in the U.S.

Based in Sweden, Skanska boasts annual revenues of $17.8 billion and employs 90,000 people

worldwide. Skanska recently acquired Whessoe International ("Whessoe"), a

200-year-old engineering and construction firm with a well-established reputation in the

16



2. Access to equipment is not an entry barrier. Equipment needed to
construct LIN/LOX tanks is readily available. It is not substantially different from the
equipment needed to construct a conventional storage tank.

3. Fabrication is not an entry barrier. Any company able to fabricate steel
plate storage tanks can fabricate the components a LIN/LOX tank. New
entrants are capable of fabricating a LIN/LOX tank.

4. Engineering is not an entry barrier, as it is a fairly standard process that a
tank construction company can easily accomplish through subcontracting to an outside firm,
hiring experienced personnel, or simply training current employees.

5. Access to personnel is not a barrier to entry. Each new entrant has already
hired personnel with LIN/LOX experience.

6. Reputation is not a barrier to entry. AT&V, Matrix and CBT have all been
accepted as qualified by the majority of the LIN/LOX customer base.

Customers’ primary motive in
awarding a project is low price, not reputation.

7. Experience is not a barrier to entry, as the primary motive in awarding a
project is low cost, not experience.

D. Factual Basis -- LPG

lL AT&V has successfully entered the LPG market, winning three of the last
four projects.

2. successfully entered the LPG market by subcontracting the
engineering and without adding a single new employee.
3. Other competitors are capable of competing in the LPG market., such as
Matrix and Chattanooga Boiler & Tank.
E. Factual Basis — TVC
1. believes that shop-erected TVCs are those that are less than 15 feet

in diameter, and the field-erected chambers are larger than that in weight, diameter, or length.

2. The main difference between the two categories is the need to have a field
crew with the equipment to align the pieces of steel together in the field.

20


repeatedly to a 1994 bid solicitation by Memphis Gas, Light and Water.

This bid, like many cited by Dr. Simpson, took place
before the merger that formed Skanska/Whessoe and before the forming of three joint ventures,
TKK AT&V, Technigaz/Zachry, and Daewoo/S&B, which were formed for the express purpose
of competing for LNG tank projects in the United States. Nonetheless, Whessoe and TKK did
participate, in one form or another, in the Memphis bidding. Dr. Simpson mistakenly asserts
that CB&I and PDM-EC were “the two low cost bidders” at Memphis (MLGW).

In fact, PDM-EC’s bid did not meet the customer’s technical specifications and was
rejected for that reason. Thus, PDM-EC’s bid cannot be
compared to those of the other bidders. Dr. Simpson's reliance on this evidence is misplaced.
As the evidence will show, Dr. Simpson's mistaken understanding of fixed and variable costs and
his selective review of the record renders his opinion suspect in every respect.

VII. REMEDY SOUGHT BY COMPLAINT COUNSEL IS INAPPROPRIATE AND
PUNITIVE

As stated above, the value of all four products at issue is a small percentage of the
revenue of PDM-EC. Yet Complaint Counsel seeks divestiture of the entire two-division
purchase. This remedy is punitive and should not be allowed. It is well established that "[t]he
key to the whole question of an antitrust remedy is .. . to find effective measures to restore
competition. Courts are not authorized in civil proceedings to punish antitrust violators, and

relief must not be punitive." United States v. E.L du Pont de Nemours & Co., 366 U.S. 316, 326

(1961). See also In re Grand Union Co., 102 F.T.C. 812 (1983) ("The Supreme Court . . . has

ruled that punitive relief is inappropriate in a civil antitrust proceeding."). Divesture is a

“© Complaint Counsel fails to mention participation in this bid was limited to engineering tasks, and
that it bid reluctantly at the urging was the entity that actually submitted the bid
to MLGW.

53



anticompetitive reductions in output or service. Merger Guidelines § 4.0. See also FTC v. H.J.
Heinz Co., 246 F.3d 708, 721 n.20 (D.C. Cir. 2001).

3. Respondents will prove the existence of millions of dollars in recurring
annual savings (compared to the $84 million purchase for the PDM-EC and Water Divisions’
assets). (See RX 66.)

4, Because CB&I and PDM had redundant capabilities in several areas, the
Acquisition permitted them to reduce fixed costs of production by consolidating and/or
eliminating certain operations.

5. The Acquisition has resulted in significant elimination of redundant
personnel and administrative functions, as well as rationalization of fabrication and engineering
services. The Acquisition has also improved CB&I's access to volume discounts, generated
substantial savings through implementation of "best practices” in engineering, construction, and
other areas, and allowed CB&I to lower its Technical Services Fee ("TSF") charged on each
cryogenic tank — a savings that is passed on to CB&I's customers.

6. These efficiencies have been verified since the Acquisition took place.

VI. ABSENT THE ACQUISITION, THE ASSETS OF PDM'S EC DIVISION WOULD
HAVE BEEN LIQUIDATED AND NO OTHER ALTERNATIVE PURCHASERS
FOR THE EC DIVISION WERE AVAILABLE

A. Legal Basis:

Olin Corp. v. FTC, 986 F.2d 1295, 1304, 1307 (9th Cir. 1993); Dr. Pepper/Seven-
Up Cos. v. FTC, 991 F.2d 859, 864-65 (D.C. Cir. 1993); FTC v. Great Lakes Chemical Corp.
528 F. Supp. 84, 87 (N.D. Ill. 1981); United States v. International Harvester Co., 564 F.2d 769,
773 (7th Cir. 1977)

B. Factual Basis:

1 In 2000, PDM's major (30%) shareholder decided to explore various ways
of converting its PDM stock to cash.

2. PDM entertained ideas from investment bankers
. After considering various options, PDM hired Tanner to sell all five of
PDM's divisions for cash as quickly as possible.

3. In July 2000, PDM issued a widely-disseminated industry-wide press
release announcing this fact.

4. PDM management concluded that selling the EC and Water
Divisions separately would be an expensive and difficult endeavor because of the nature of the

7


VU. BUDGET PRICING IS NOT AN ACCURATE INDICATOR OF
ANTICOMPETITIVE EFFECTS

A Factual Basis .

1. Budget pricing is merely an initial effort to give the customer a “ballpark”
price for a particular job. They are usually over-estimated to assist customers in managing their
budgets, and to manage the customer's expectations.

2. Budget prices for the products at issue, such as LIN/LOX tanks, range
from 25% above the final bid price to 5% below the final bid price.

3. Budget prices often vary and can be unreliable indicators of true price
because they are necessarily based on incomplete information. When a customer solicits a
budget price, they generally do not provide all necessary information, such as: 1) what
schedule the customer plans to follow in building the structure; 2) the exact location; 3) what
design details; 4) customer identity; or 5) start date of the project. This information is needed to
calculate a final fixed price bid, and that a lack of information on these and other issues can
result in varying budget prices.

4. Customers do not purchase structures based on a budget price. When
they wish to purchase a product, they solicit a final, firm price bid. At that time, they provide all
of the necessary information set forth above.

5. Contractors do not generally spend much time on budget pricing;
accordingly, it is not as accurate or as low as possible.

VU. COMPLAINT COUNSEL'S RELIANCE ON ITS CRITICAL LOSS ANALYSIS
ARE FACTUALLY FLAWED

A. Factual Basis

1. With respect to LNG tanks, Dr. Simpson incorrectly estimated the costs
associated with his contribution margin calculation.

2. Dr. Simpson underestimates the competition that CB&I faces and thus the
likelihood that its sales would decline if it atterapted to increase price. Based on his erroneous
estimate, Dr. Simpson concludes that a 5% price increase would be profitable if CB&I’s sales
decline by no more than 25%, The evidence suggests
that » CB&I is unlikely to be able to be asked to bid on any more than
U.S. LNG tank projects. A correct estimate of variable costs shows a price increase would be
unprofitable if it caused CB&I to lose only one project. In addition, Dr.
Simpson in no way accounts for the fact that the number of cryogenic tank projects is sporadic.
If loses one project in a given year, that project could represent 100% of its sales for that

23


~ CERTIFICATE OF SERVICE

I, Nada S. Sulaiman, hereby certify that on this 29th day of October, 2002, I
served a true and correct copy of this Public Version of the Pretrial Brief of Respondent Chicago
Bridge & Iron As Corrected On November 5, 2002 by hand delivery upon:

The Honorable D, Michael Chappell
Administrative Law Judge

Federal Trade Commission

600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580

(two copies)

Secretary of the Commission
Federal Trade Commission

600 Pennsylvania Avenue, N.W.
Room H-159

Washington, D.C. 20580

and by facsimile and by first-class mail to:

Rhett R. Krulla

Acting Assistant Director
Bureau of Competition

Federal Trade Commission

600 Pennsylvania Avenue, N.W.
Room S-3602

Washington, D.C. 20580

Steven L. Wilensky

Federal Trade Commission

601 Pennsylvania Avenue, N.W.
Room S-3618

Washington, D.C. 20580

ZU g/—

S. Sulaiman

281635.1

60



Fourth, solicited pricing for a LIN/LOX tank project in

inmid- . solicited budget pricing from
initially internally priced the utilizing a profit margin but
ultimately provided a firm fixed price bid for the project at a in response
to competitive pressures.
awarded that project to in March Based on its

analysis of pricing from recent projects, was satisfied with the price it paid for this tank.

Finally, is currently contemplating the purchase of a field-erected LIN tank for a

facility in will competitively bid the contract
and anticipates soliciting bids from The low
bidder will win the

Cc. Timely, Substantial and Sufficient Entry Has Occurred In The LPG Market.

1. Although Demand For LPG Tanks Is Low, Significant Competition
Exists.

Since 1999, there have been four LPG projects sold in the U.S.
Of those four, AT&V has won three of the projects, including two in 2001.
Since 1994, CB&I has won only one project. The last PDM LPG tank project was in 1998.

There is no evidence that the merger substantially lessened competition.”

*2 Dr. Simpson, Complaint Counsel's expert economist, has presented data on the results of bids for ammonia tanks,
which he asserts are similar to LPG tanks. Ammonia tanks are not included in the markets
outlined in the Complaint in this matter or in his report. Dr. Simpson generally refuses to consider the possibility
that experience and reputation gained in supplying one type of tank may help a firm compete for projects to supply a
different tank in any of the markets he defines. It is curious that he considers contracts for ammonia tanks in this
instance. Furthermore, he apparently never considered whether other types of tanks were also similar to LPG tanks
and thus whether there was a good reason for including them in the analysis as there supposedly is for ammonia
tanks. Thus, Dr. Simpson's analysis of the rates of success in bids for LPG and ammonia tanks is based on data that
are not outdated but arbitrarily selected.

33


profit margin to a bid containing a margin of

D. Factual Basis -- LPG Market

1 Since 1999, there have been four LPG projects sold in the U.S. (Harris
Rpt., | 91 (citing Table 5.))

2. Of those four, AT&V has won three, including two in 2001. Id.
3. Since 1994, CB&I has only won one project. Id.
4. PDM's last LPG project was in 1998. Id.

5. AT&vV has successfully bid on and completed three LPG tank projects.
6. These LPG customers are pleased with AT&V's work.
7. AT&YV plans to pursue this type of work in the future.

8. Matrix has bid on LPG projects in the past and is respected by LPG
customers, such as

9. Two former project managers from PDM now work for Matrix.

10. CBT has built a variety of API 650 storage tanks, API 620 storage tanks,
ASME pressure vessels, and ambient petroleum gas storage tanks.

11. CBT plans to pursue future LPG tank projects.

12. Any builder capable of constructing an API 650 or API 620 storage tank
has the capability to build LPG tanks.

13. Such builders include Advance Tank, Puget Sound Fabricators, among
many other.

14. Foreign companies can construct these tanks in the U.S. and are actively
seeking this work.

15. believes that competition among alone
is sufficient to prevent a price increase, and foreign competitors would enter the market if

13

a


2. There Has Been Substantial and Sufficient Entry in the LPG Market.

Three companies in the U.S. are already in the market for LPG tanks, and several others
are capable of entry. First, AT&V has successfully bid on and completed three different LPG
tank projects for

These customers have been pleased with AT&V's work, and
AT&V plans to pursue this type of work in the future.
The fact that AT&V has taken such a large share of the post-Acquisition
market is dispositive. See Syufy, 903 F.2d at 667-68.
Second, Matrix is a viable competitor in this market. Matrix has bid on LPG tanks in the
past, and is respected by customers such as
Two former PDM employees, both project managers, now work for Matrix.
Their experience and knowledge solidifies Matrix's position as an
LPG tank competitor.

Third, CBT has built a variety of API 650 storage tanks, API 620 storage tanks, and
ASME pressure vessels. CBT has also built
ambient petroleum gas storage tanks for clients such as

LPG tanks are, in many ways, similar to these structures,
and CBT is confident that it can construct them. CBT plans to pursue
future LPG tank projects.

In addition to these three competitors, numerous other tank manufacturers in the U.S. can
make LPG tanks. Any builder capable of constructing an API 620 or API 650 storage tank has
the capability to build LPG tanks. Such builders include

Advance Tank and Puget Sound Fabricators, among many others.

Further, foreign

34



e Experience -- Experience is not a barrier to entry, as the
primary motive in awarding a project is low cost, not experience. For example,
although was concerned about using _ to construct a LIN/LOX tank, it
awarded __ the project after checking its references. made this award
despite the fact that was not pre-qualified at the time it submitted its
pricing package.

3. LPG "Entry Barriers"

There are no meaningful entry barriers in the LPG market. AT&V has successfully
entered, winning three of the last four projects, and Morse successfully made a hit-and-run entry
(given sporadic demand, that is all that is necessary) by subcontracting the engineering and

without adding a single new employee.

D. Complaint Counsel Improperly Relies On Budget Pricing To Argue That
Prices Have Increased As A Result Of The Acquisition.

In a vain effort to show that prices have been affected by the Acquisition, Complaint
Counsel relies on budget pricing provided by CB&I to customers over the past two years.
The evidence will show that use of budget pricing to try to measure effects of the
Acquisition is invalid. Budget pricing is merely an initial effort to give the customer a "ballpark"
price for a particular job. Generally, budget prices are to assist customers in
managing their budgets, and to manage the customer's expectations. For that reason, budget

prices for the products at issue, such as LIN/LOX tanks,

Budget prices often vary and can be unreliable indicators of true price because they are
necessarily based on incomplete information. When a customer solicits a budget price, they

generally do not provide all of the information necessary for CB&I to provide a final firm price

(emphasis added). This testimony directly contradicts Complaint Counsel's unsupported
assertion that reputation is the most important consideration in selecting a LIN/LOX tank supplier.

49



Although — had not submitted a bid for the LNG tanks during this process, it later

Dynegy and Dynegy
abid from because it was satisfied with the bids already submitted by
Dynegy's
willingness to entrust the Hackberry Project (the largest ever built in the U.S.) to
these dispositive of the quality of existing competition for LNG tanks in
the U.S.’

(b)

Ww

‘© Complaint Counsel argues that Dynegy did not let This
argument assumes Dynegy is irrational, since Dynegy could have saved if Complaint Counsel's view
that would have been able to offer . The facts are contrary: Dynegy testified it

was and
bids while the FERC application was pending.

22


For LNG tanks, Dr. Simpson based his variable costs estimate for purposes
ofcomputing the contribution margin almost entirely on a single document describing the
projected costs of a single project. Based on this document,
he incorrectly assumes that several important categories of costs, including the number of
engineers and project managers CB&I employs, are entirely variable, when in fact the evidence

will show they are not.

Dr. Simpson's critical loss analysis is also flawed in that it underestimates the
competition that CB&I faces and thus the likelihood that its sales would decline if it attempted to
increase price. Based on his erroneous estimate, Dr. Simpson concludes that a 5% price increase
would be profitable if CB&I’s sales decline by no more than 25%.

The evidence suggests that over the next three years, CB&I is unlikely to be able to be
asked to bid on any more than “A correct estimate of variable
costs shows a price increase would be unprofitable if it caused CB&I to lose only one project.

In addition, Dr. Simpson in no way accounts for the fact that the number of
cryogenic tank projects is sporadic. If CB&I loses one project in a given year, that project could
represent 100% of its sales for that year. Thus, the cost of a loss of one large bid due to one price
increase destroys Dr. Simpson's estimates.

Moreover, Dr. Simpson fails to recognize current competition where significant changes
in LNG, LIN/LOX, and LPG markets have occurred. For example, Dr. Simpson refers
however, these include that

It is unlikely that CB&I will be able to compete for all the
remaining _ projects. For one of these projects, the preliminary engineering study for the project calls for the

Moreover, at least these projects are at a very early stage of planning. It is highly likely that most of these
projects will not be built.

52



IN CAMERA



VI.

VIL.

1. Demand Is Nearly Non-Existent...........sssssscsssecssssssesesssessssseessnnsseessssnessseseee 37

2. Competition Exists If Customers Choose To Utilize It .

OTHER FACTORS SHOW THAT THE ACQUISITION HAS NOT
SUBSTANTIALLY LESSENED COMPETITION IN ANY

A. Absent The Acquisition, The Assets of PDM's EC Division Would
Have Been Liquidated And No Other Alternative Purchasers For The
EC Division Assets Were Available ............ceccccsssscsessssecssseseessseeenssersansesnesssatesssnees 3D

B. The ‘Acquisition G Generated od Merger-Specific A And nd Cognizable
Efficiencies ..

COMPLAINT COUNSEL'S EVIDENCE FAILS TO PROVE THAT CB&I'S
ACQUISITION WILL SUBSTANTIALLY LESSEN COMPETITION

A. Complaint Counsel's Use Of 12 Year Old HHI Data Is
Misleading And Inaccurate ...........scescessesssesssssceseseecscessensaneseetseesaeeneenecneseeeneenennenneenee 45

B. Complaint Counsel Fails To Address The Sufficiency O Of
Post-Acquisition Entry... sesseseeseneeses seeveseeseeeereseeareseeseeereseesees 46

Cc. Complaint Counsel's Is Supposed Entry B Barriers Are
"Red Herrings"... soeseescensesneeneanecaneseeseasseneeaessneseeaees

1. LNG "Entry Barriers” 0... ccsssseessssessseesssecssseesssesssssssesssessseessserssnvesssecessseesss 46

2. LIN/LOX "Entry Barriers" ........eesecsesssessseeeseeneeneeseeereersnreseesresserssesstesesesees 48

3, LPG “Entry Barriers" 0... scseecseecseesseesseeseeeseesseessesssessnesersseesssensessesseesseessseee 49
D. Complaint Counsel Improperly Relies On Budget Pricing

To Argue That Prices Have Increased As A Result Of
The Acquisition.

E. Complaint Counsel's Case Relies On Distorted Evidence........ssscseesenne SL

F, Complaint Counsel's Arguments Regarding "Critical
Loss Analysis" Are Factually Flawed...........sccsssssssssseecseesssesssecssssesseeessecesneetsseeessnees OL

REMEDY SOUGHT BY COMPLAINT COUNSEL IS INAPPROPRIATE

iii


that if the Water and EC divisions could not be sold together, " a reasonable buyer may not be
found and a liquidation of the business may be the most effective resolution.”

According to Tanner, PDM's _ estimated
liquidation value was between $14 and $31 million; CB&I paid an estimated $17 million for the
EC Division assets.

The evidence will also show that no other purchasers were interested and/or able to
purchase PDM's EC assets. See U.S. v. M.P.M. Inc., 397 F. Supp. 78, 102 (D. Colo. 1975)
(finding "failing company" defense established where, inter alia, there was no other prospective
purchaser for the entity at issue). As such, Respondents urge this Court to recognize that the
purchase of these assets did not substantially lessen competition.

First, the evidence will show foreign companies were not interested in purchasing the EC
Division's assets and made no inquiry to suggest such an_ interest.

Second, no financial investor was interested because "it would have been a very difficult and
probably impossible sale" for a financial based buyer to buy a company that is losing $9 million
(and later $30 million.)

The only passing interest in the EC Division came from was not
a viable purchaser because it was only interested in purchasing PDM's EC Division, a plan that
was contrary to the wishes of PDM and the advice of its consultants.*® It is
also clear that could not have financed the purchase of both PDM-EC and Water's assets.

Based on its financial statements, PDM's professional investment

banker determined that could have at best offered sufficient consideration in the form of

* only interest in PDM focused on the two fabrication facilities associated with PDM's Water Division.

In order to accommodate as a purchaser, PDM would have had to liquidate its Water Division.
This would have been nonsensical, given that PDM's Water Division was the only asset that had value as
a going concern.

4l


Furthermore, the main customers for field-erected TVCs are large companies such as
Boeing, Northrup Grumman (which just acquired TRW), Raytheon and Lockheed Martin.
These companies have the financial resources to sponsor a new entrant. For

example, in 2001, Boeing chose Puget Sound Fabricators ("PSF") over CB&I to build an

expensive and sophisticated 80-foot-diameter vacuum sphere even though PSF had never built

such a structure before.

Vv. OTHER FACTORS SHOW THAT THE ACQUISITION HAS NOT
SUBSTANTIALLY LESSENED COMPETITION IN ANY RELEVANT
MARKET.

Two additional factors demonstrate that the Acquisition has not substantially lessened
competition. First, the evidence will show that the PDM-EC Division would have been
liquidated absent the Acquisition due to its poor financial performance and that the fact that no
other alternative buyers were available. Respondents respectfully submit that these facts satisfy
the "exiting assets" defense articulated in Olin Corp. v. F.T.C., 986 F.2d 1295, 1307 (9th Cir.
1993), which is a variation of the failing firm defense. Second, the Acquisition generated
substantial efficiencies which offset any anticompetitive effects of the Acquisition. The
evidence will show that these efficiencies are merger-specific and cognizable, entitling CB&I to
judgment as a matter of law.

A. Absent The Acquisition, The Assets of PDM's EC Division Would Have Been

Liquidated And No Other Alternative Purchasers For The EC Division
Assets Were Available.

The evidence will show that, absent the Acquisition, PDM's EC Division assets would

have been liquidated. The evidence will also show that Complaint Counsel's argument is largely

an academic one that fails to account for actual market conditions and realities. Accordingly,

CB&I's Acquisition did not substantially lessen competition.

39


"substantial." See Baker Hughes, 908 F.2d at 987-88 (rejecting the Government's argument that
a defendant must show "quick and effective” entry to rebut the Government's prima facie case
and noting that imposing a heavy burden of production on a defendant would be particularly
anomalous in cases where the Government can establish its prima facie case simply by
presenting market concentration statistics). Rather, to rebut the Government's prima facie case, a
Respondent must make 'showing' that the prima facie case inaccurately predicts the relevant
transaction's probable effect in future competition.” Jd. at 991. Moreover, "if barriers to entry
are insignificant, the threat of entry can stimulate competition in a concentrated market
regardless whether entry ever occurs." Id. See also FTC v. Procter & Gamble Co., 386 U.S.
568. 581 (1967). Finally, "failed entry in the past does not imply failed entry in the future: if
prices reach supracompetitive levels, a company that has failed to enter in the past could become
competitive. Id. at 989 n. 9.

4. Post-acquisition data is dispositive since it proves absence of significant
entry barriers in the relevant market. See Baker Hughes, 908 F.2d at 989 (relevant that two new
companies had recently entered the U.S. drilling rig market, winning one contract a piece "and
were poised for future expansion"). See also Syufy Enterprises, 903 F.2d at 662-666 (entry
barriers low where a movie theater owner opened up three new cincma multiplexes within a
thirteen month period, and within two years of the challenged acquisition was operating more
screens than previously). "Post acquisition evidence tending to diminish the probability or
impact of anticompetitive effects might be considered in a § 7 case." United States v. General

Jynamics Corp., 415 U.S. 486, 505 (1974). See also United States v. Archer-Daniels-Midland
Company, 781 F. Supp. 1400, 1421-22 (S.D. Iowa 1991).

5. Since probability of anti-competitive effect is judged at the time of trial,
and "post-acquisition evidence favorable to a defendant can be an important indicator ... where
the evidence is such that it could not reflect a deliberate manipulation by the merged companies
temporarily to avoid anticompetitive activity, and could not reasonably be construed as
representing less active market competition than would otherwise have occurred without the
questioned acquisition." Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 276 (7th Cir. 1981).
See also United States v. International Harvester Co., 564 F.2d 769, 778-781 (7th Cir. 1977).

Further, customer evidence is one of the most important forms of evidence for assessing
anticompetitive effect. FTC v. Great Lakes Chem. Co., 528 F. Supp. 84, 94-95 (N.D. Ill. 1981);
New York v. Kraft Gen. Foods, Inc., 926 F. Supp. 321, 351 (S.D.N.Y. 1995).

B. Factual Basis -- LNG

1. Increased demand, combined with the Acquisition, is drawing foreign
LNG tank builders into the U.S. market.

2. is ajoint venture with vast experience designing and
constructing LNG tanks and LNG import terminals around the world,
and has entered the market. Specifically to aid in this
effort, formed a joint venture with


misleading as to actual future competitive effect," because case of entry is relevant to appraising
the impact upon competition of a merger and may override other factors); F.T.C. v. Cardinal

Health, 12 F. Supp. 2d 34, 54-55 (D.D.C. 1998) ("Even in highly concentrated markets, if there

is sufficient ease of entry, enough firms can enter to compete with the merging firms,
undercutting any of the likely anticompetitive effects of the proposed merger... . A court's
finding that there exists ease of entry into the relevant product market can be sufficient to offset
the government's prima facie case of anticompetitiveness.").°

Ease of entry is established by evidence of timely, likely and sufficient entry.’ See
generally Cardinal Health, 12 F. Supp. 2d at 55. Entry is timely if it takes place within
approximately two years. See Syufy, 903 F.2d at 666. Entry is likely and sufficient if "ease of
entry in the market is such that the producers in the market could not long sustain an unjustified

price increase." United States v. Calmar, Inc., 612 F. Supp. 1298, 1301 (D.N.J. 1985). See also

Baker Hughes, 908 F.2d at 989 (entry is sufficient where it "would likely avert anticompetitive
effects from . . . the acquisition. . . ."). Moreover, in Baker Hughes, the D.C. Circuit specifically
rejected the Government's argument that a defendant must show "quick and effective" entry to
rebut the Government's prima facie case. Id. at 987-88. The court also recognized that
"potential competitors have a strong interest in downplaying the likelihood that they will enter a

given market," and that "a firm that never enters a given market can nevertheless exert

5 Further, Complaint Counsel, in attempting to justify selecting an HHI measuring 12 years of demand, grossly
distorts Section 1.41 of the Merger Guidelines which states that "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."
(FTC Br. at 14.) The operative terms in Section 1.41 are found in the phrase where "annual data may be
unrepresentative." (emphasis added). CB&I does not dispute that for many individual years the use of annual data
would be entirely unrepresentative of demand in these markets. It is, however, stretching the boundaries of the use
of the HHI in entirely another direction to include 12 years of demand. CB&l, in including six years of demand in
its suggested HHI measuring period of 1996 through 2001, respectfully suggests that six years of competition is
more than ample to measure competition in any relevant market.

° The Merger Guidelines, cited by Complaint Counsel, are not binding upon the court. F.T.C. v. PPG Indus., 798
F.2d 1500, 1503 n.4 (D.C. Cir. 1986); Olin Corp. v. F.T.C., 986 F.2d 1295 (9th Cir. 1993)).



E. Complaint Counsel's Case Relies On Distorted Evidence.

Complaint Counsel relies on a variety of distorted and misinterpreted evidence to support
its case. For example, Complaint Counsel claim that "Industry Participants Predict Higher Prices
for the Relevant Products As a Result of the Acquisition." However, this
claim is largely based on outdated affidavits, which fail to address the substantial post-
acquisition entry which has occurred in the relevant markets. In fact, the sworn deposition
testimony in this case favors Respondents. In order for
Complaint Counsel to carry its burden, a clear preponderance of the evidence favoring
Complaint Counsel's case is required. See United States v. Sungard Data Sys., Inc., 172 F. Supp.
2d 172, 183, 190-91 (N.D. Ill. 2001) (finding that DOJ failed to carry its burden on product
market where customer testimony was found to be at best "equivocal").‘*

EB Complaint Counsel's Arguments Regarding "Critical Loss Analysis" Are
Factually Flawed

Dr. Simpson’s opinion regarding LNG and LIN/LOX tanks is based largely on a factually
flawed “critical loss" analysis. Critical loss theory
measures the percentage loss in sales necessary to make a given price increase unprofitable for a
producer. The higher the fixed costs as the percentage of a product's total cost (the "contribution
margin"), the lower a firm’s willingness to risk the loss of business a price increase might cause.
“ Further, Dr. Simpson relies on the same type of unreliable evidence. While he suggests that the opinions of
buyers “should only be given weight if the customers have a meaningful basis for forming these opinions”

he relies on statements from customers who admittedly do not have current
information about the market and from witnesses who later testified that they have changed their opinions. For

example, he cites while admitting that the testimony of knowledge is
limited to the market from the late 1990s, and testified that he has not assessed the LNG tank market
in detail as his company has not bid an LNG tank project in that time.

Dr. Simpson ignores the large number of witnesses who have an active involvement in
and responsibility for the sourcing of LNG tanks and who have testified that the merger will not have an

anticompetitive effect.

SL


Customers testified that this agreement would benefit competition.
The last competitively bid

thermal vacuum chamber was won at a price

Despite the dormant market for TVCs, Complaint Counsel proposes to breakup CB&I's
$80 million Acquisition in its entirety because of potential loss of competition in the de minimis
TVC market. TVC customers would be concermed if this litigation resulted in a splintering of
CB&I into two companies, with neither company having the expertise to properly make field-
erected TVCs. Customers have testified that
they did not know whether a divested PDM would be allowed to bid on TVC projects because of
its unknown financial circumstances.

Similarly, were a foreign competitor to acquire a divested PDM-EC, the customers do not know
whether that divested company could bid because of the "made in the U.S.A." requirements in
their government contracts which are imposed for reasons of national security.

Further, if any remedy imposed by this Court resulted

57


evidence should be disregarded here, because it is the result of CB&I's manipulation in light of
its knowledge of the FTC investigation. (FTC Br. at 29.) Complaint Counsel might be right if
CB&I were pointing exclusively to the low prices at which it acquired a dominant post-
Acquisition market share. Complaint Counsel's position makes no sense, however, where the
post-Acquisition evidence concerns jobs lost despite the offering of very low prices. In these
circumstances, "[p]ost-acquisition evidence favorable to a defendant can be an important
indicator . . . where the evidence is such that it could not reflect deliberate manipulation by the
merged companies temporarily to avoid anticompetitive activity, and could not reasonably be
construed as representing less active market competition than would otherwise have occurred

without the questioned acquisition." Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 276 (7th

Cir. 1981). There will be no evidence, and there can be no argument, that entry by competitors

was manipulated by Respondents.’
IV. TIMELY, SUBSTANTIAL AND SUFFICIENT ENTRY DEMONSTRATES THAT

THE ACQUISITION DID NOT SUBSTANTIALLY LESSEN COMPETITION IN
THE RELEVANT MARKETS.

Respondents intend to show that entry has occurred in each of the relevant markets, the
result of which prevents CB&I from successfully imposing a price increase. Despite defining
four relevant markets, Complaint Counsel greatly confuses the entry issue by lumping all of the
markets together. As some of the entrants are different in each market, cach entrant must be

considered in the context of the market in which it competes.

7 Hospital Corp of Am. v. F.T.C., 807 F.2d 1381 (7th Cir. 1986), is not contrary. There, the Seventh Circuit states
that “[pJost acquisition evidence that is subject to manipulation by the party seeking to use it is entitled to little or no
weight." Id. at 1384 (emphasis added.)

11


(A) Cheniere .....ccescsssscsessreensecsseesteeseesseessteseessesssetssssssssesssssanenneerseenseessene 23)

(e) Yankee Gas 24

(69)
(8) EL PASO cesessssssessesssnsvssietististnetinttstisnssseiestasustssissusnaens 26

25

Timely, Substantial and Sufficient Entry Has Occurred In The
LIN/LOX Market ...0....esssescsecsssecseesnesssecerecsvcessceseesseseseesseesecereesessecenresassassneeensess 27

1. The LIN/LOX Tank Market Is Insignificant Because Demand
For LIN/LOX Tanks Is Extremely Low seseaeeereseeeteneeneen

.- 28

2. There Has Been Substantial And Sufficient Entry
In The LPG Market

(8) AT EV voccescsecstesseeesesssesseecsesessesssessesssessessssssnsesesnerseeseessesssseaeesesees 29)
(BD) Matrix... ee eee eeeeeeeeeeeeeeerereseneerenesntesmeaneneseesiresssnecsessiecnseereseees — 30
3. Recent LIN/LOX Projects Demonstrate Timely, Substantial

and Sufficient Competition that Rebuts Complaint
Counsel's Case

Timely, Substantial and Sufficient Entry Has Occurred In The
LPG Market .. sessusseeseesessessesesssesseeseeeessesseeseeneenesaesnesecsesneeseesseneenseneeseeneete

. 33

1. Although Demand For LPG Tanks Is bow, Significant
Competition Exists. ceeseeuiesecaesseesecaeeneeaeeseesseeaeeseesesesesiesnesesscsneees OS)

2. There Has Been Substantial And Sufficient Entry In
The LPG Market... sssaeessuecssetecsseeessuesessceesseesssasessieessecssessanesesssecsssasensseessns OA

3. Current LPG Customers Recognize The Presence Of Sufficient
Post-Merger Competition..........ssssssecssseseessesseesssssseessessassseesesstesseessneeseessesssesese OD

The Thermal Vacuum Chamber Market Is De Minimis/Sufficient
Competition Exists... ecseeseecseesseesseeseesseessnessenesessresseissacseassasssssestsneesesssvearecssnsesy 36


First, competitively bid LIN/LOX tanks during
evaluated bids from and selected

because it was the was

so satisfied with AT&V's performance that it has given AT&V additional LIN/LOX work and

positive references to other customers. _ was satisfied with the price it paid for this project.

Second, in 2002, competitively bid a LIN/LOX tank in
received bids from

Due to the fierce competition for this job,

lowered its final bid to fd Despite this steep price cut,

was unsuccessful -- awarded this project to AT&V.°

31

Third, also in 2002, signed a letter of intent with — to construct a LIN tank in

approached because it was pleased with prior performance, and because

believed that the from that job would save costs on _ the

?° Complaint Counsel argues that it will take years to restore intense competition in this market.
Itis difficult to understand how a market in which suppliers cannot bid at can be
considered to be anticompetitive.

3° Complaint Counsel again suggests that decision to go with reflects a decline in competition.
However, could have avoided by awarding this job to
at a very favorable price. This example demonstrates lack of competitive advantages.

3! This case is wholly unlike Complaint Counsel's citation of In re Coca-Cola, 118 F.T.C. at 609,
which involved not the elimination of a competitor in that a homogenous market but instead the elimination of a
single differentiated soft-drink brand -- Mr. Pibb. The fact consumers who liked the taste of the no longer available
Mr. Pibb had to switch to "less desirable alternatives" has no application to a bid-model heavy construction industry.

32



competition slackened.

16. | The Acquisition appears to increase the level of competition from smaller
tank manufacturers.

17 ‘For example, was very pleased with an LPG tank it purchased from
in 2001.

18. submitted bids on the project.

19. price was so competitive that is "beat the socks off of

20. like most tank construction companies, successfully competed
against on an LPG project despite no prior LPG, low temperature or cryogenic tank
experience.

21. permitted to bid even though it was not on
approved bid list.

22. timely completed the project without any major problems, and

was satisfied with the performance, the price, and the quality.

E. Factual Basis -- Thermal Vacuum Chambers

1. believes that shop-erected TVCs are those that are less than 15 feet
in diameter, and the field-erected chambers are larger than that in weight, diameter, or length.

2. The main difference between the two categories is the need to have a field
crew with the equipment to align the pieces of steel together in the field.

3. Some small TVCs must be field-erected because they can only fit into the
customer's building by being shipped in pieces instead of whole.

4. The steps taken in the design, procurement, fabrication and field-erection
processes are identical for both cryogenic storage tanks (including TVCs) and conventional flat-
bottom storage tanks.

5. Complaint Counsel's historical sales data show that CB&I has not
constructed a single TVC since 1984, when it exited the market.

14



that these customers uniformly believe that the entry of foreign competition in this market is of a

high quality and provides a sufficient level of competition. This evidence of successful entry is

the most important evidence in a Section 7 case. See, e.g., New York v. Kraft Gen. Foods, Inc.
926 F. Supp. 321, 351 (S.D.N.Y. 1995) ("Plaintiff offered no evidence that retailers [primary
customers of ready-to-eat cereal] object to, or have been harmed by, the Acquisition," and the
two largest customers testified in support of merger.).'° The evidence will show that U.S.
customers continue to prequalify foreign LNG tank manufacturers for bidding and accept their
bids. Evidence of specific examples of
current, successful post-merger competition essentially obliterate Complaint Counsel's LNG
case. This evidence is dispositive:!!
(a) Dynegy
This year, Dynegy awarded an EPC contract to Skanska/Whessoe for the
--an import terminal worth between million.
The facility will contain three full-containment LNG tanks.

When completed, the will be the largest in the U.S.

2 As part of its search for an EPC contractor, Dynegy engaged in

including analysis of each and
"° Sce also F.T.C. v. Great Lakes Chem. Corp., 528 F. Supp. 84, 94-95 (N.D. Ill. 1981) ("A key factor to consider in

analyzing whether the proposed acquisition will violate Section 7 is the impact of the transaction on . . . customers");
D. Scheffman, Director of Bureau of Economics, F.T.C., Sources of Information and Evidence in Merger
Investigation, June 14, 2002 (found at www.ftc.gov/speeches/other/scheffmanabanyebar.pdf (visited October 28,
2002)) (stating that "[cJustomers are . . . frequently well positioned to assess the potential impact of the merger on
prices and other competitive factors" while the "motives of competitors must be carefully considered in assessing
the information provided" because "competitors generally have an incentive [to] express negative views about a
proposed transaction that would result in a stronger competitor and competition.")

" Complaint Counsel asserts that all of the LNG tanks in the U.S. are single-containment. " By
contrast, most of the projects currently being planned are double or full-containment, as discussed below.

” Construction of the facility is expected to and will be completed.

20


IL.

ill.

IV.

TABLE OF AUTHORITIES

BACKGROUND
A.

B.

Transaction Background

Factual Background .0......eccssssssssecssecevessnseareeseressesereseneransesesearcanessaeesseeneeenreeasessseese

THE GOVERNING LEGAL STANDARDS FOR PERMANENT
INJUNCTIONS UNDER SECTION 7 OF THE CLAYTON ACT
PLACE A HEAVY BURDEN ON COMPLAINT COUNSEL. .....s:scssssssssessseessssssseseens

TIMELY, SUBSTANTIAL AND SUFFICIENT ENTRY DEMONSTRATES
THAT THE ACQUISITION DID NOT SUBSTANTIALLY LESSEN
COMPETITION IN THE RELEVANT MARKETS. .. sasesveesaecssectseessees

A.

Timely, Substantial And Sufficient Entry Has Occurred In

The LNG Market.

1.

Six Foreign Competitors Have Sufficiently Entered The U.S.
Market To Construct LNG Tanks And Facilities Since The

Consummation Of The Acquisition..

(a) Technigaz/Zachry ....essscssssecsstenssessssinesiesentesseteteneeresneee

(c)  Skanska/Whess0e.........sssssssesesssecserssseeseeesreeseeeaenseeenecaneenseesasenseenees

(4) Daewo0/S&B ....sssecssssssecssesssnssseessecsnessarssersseeseesscsseesseesnecsnecaeessseense

fe) Tractebel oo ccessseesecssesseesecseeseeacsseesecsesseeersseeseeseeseeaessessneaeeneeeneee

The Presence Of Foreign Competition Has Been Timely,

Substantial And Sufficient.
(a) Dynegy......
(b)
©

1

12

13
14
15
16
18
19

19

19
20
22

23


improved CB&I's ability to compete in the world market for cryogenic tanks.
Merger-specific efficiencies are defined as those unlikely to be

accomplished in the absence of either the proposed merger or another means during a

comparable time frame. They must be verified, and not automatically accepted as a result of

anticompetitive reductions in output or service. Merger Guidelines § 4.0. See also FTC v. HJ.

Heinz Co., 246 F.3d 708, 721 n.20 (D.C. Cir. 2001).
Respondents will prove the existence of millions of dollars in recurring annual savings
(compared to the $84 million purchase for the PDM-EC and Water Divisions' assets).

Because CB&I and PDM had redundant capabilities in several areas, the Acquisition
permitted them to reduce fixed costs of production by consolidating and/or eliminating certain
operations. The Acquisition has resulted in significant elimination of redundant personnel and
administrative functions, as well as rationalization of fabrication and engineering services. The
Acquisition has also improved CB&I's access to volume discounts, generated substantial savings
through implementation of "best practices" in engineering, construction, and other areas, and
allowed CB&I to lower its Technical Services Fee ("TSF") charged on each cryogenic tank — a
savings that is passed on to CB&lI's customers.

These efficiencies have been verified since the Acquisition took place. Complaint Counsel lacks
any evidence to rebut evidence of efficiencies presented by Respondents. Such uncontradicted
evidence, combined with the significant entry discussed above, rebuts Complaint Counsel's case
and requires judgment for Respondents.

VI. COMPLAINT COUNSEL'S EVIDENCE FAILS TO PROVE THAT CB&I'S

ACQUISITION WILL SUBSTANTIALLY LESSEN COMPETITION IN ANY
RELEVANT MARKET.

The evidence will show that Complaint Counsel's case is deficient in numerous respects,

such that they cannot meet their burden of proof. Each deficiency is discussed below.

44


LIN/LOX jobs since the Acquisition.

Given AT&V's 75% post-Acquisition market share, Complaint Counsel's reliance
on historical pre-merger evidence is inapposite and misleading. In addition to AT&V, two other
companies have recently entered the LIN/LOX tank market. Matrix Services, an Oklahoma-
based comprehensive tank builder, has built since 1998 and continues to
bid on these projects. Chattanooga Boiler and Tank
("CBT") has also begun to bid on LIN/LOX tanks in the U.S.

Customers believe that these companies are qualified and sufficient in number to provide
competitive bidding.

1. The LIN/LOX Tank Market Is Insignificant Because Demand For
LIN/LOX Tanks Is Extremely Low.

Demand for field-erected LIN/LOX tanks is very low due to excess capacity of oxygen
and nitrogen production in the U.S. In fact, this market is
suffering the "most extended and lowest drop in business" in recent memory.

Due to excess capacity, traditional purchasers of LIN/LOX tanks are rarely in the

market for new tanks or plants.°

of an air separation facility can range in cost from 20 to 70 million dollars, while the cost of a LIN/LOX/LAR tank
can range between $500,000 and 1.5 million dollars.

Complaint Counsel includes, as part of this product, products known as liquid helium spheres and liquid hydrogen
spheres. Complaint Counsel cannot succeed in its burden of proof with respect to these product lines, First, these
products are in no way similar to the LIN/LOX tanks discussed herein. Second,
Complaint Counsel has not presented a shred of evidence regarding these products, or the pricing associated with
them. Third, Respondents will present customer testimony demonstrating that the acquisition has not caused any
harm. Fourth, and finally, these products are legally insignificant,
as none have been built in the U.S. since 1996.

5 For example, Graver Manufacturing went out of business due to an overall lack of demand in this tank market.

28



sufficient competition exists. Alternatively, Respondents have offered to cure any competitive

concerns.

1. Demand Is Nearly Non-Existent.

Complaint Counsel's historical sales data show that CB&I has not constructed a single
TVC since 1984, when it exited the market.

CB&l's exit left PDM as the only competitor for field-erected TVCs in the U.S. from 1984 until
1997. CB&I attempted to reenter the TVC market in 1997 by acquiring
XL systems ("XL"), but has not built a field-erected TVC since its reentry.

CB&I has subsequently sold XL, returning it to its pre-Acquisition capability
level. Given the dormant market, the change in the HHI for
field-erected TVCs as a result of the CB&I merger is zero, which means Complaint Counsel
cannot establish a statistical prima facie case. 35

The satellite industry has excess capacity in its existing TVCs.

Most satellite manufacturers already have one or more of these chambers, which have
long lifespans.
Only two field-erected TVCs have been built in the U.S. since
‘1990. Demand for TVCs is in further decline for two reasons. First, demand for
commercial and government satellites is nearly non-existent.

Second, satellite sizes are shrinking, rendering the large,

field-erected TVCs obsolete.

5 CB&I acquired XL because the hydrocarbon market was fairly soft and CB&I was looking to venture into new
areas of technical expertise. XL had some capability in the medical industry.

Asa unit of CB&I, XL Systems never made a_ profit.
Customers have stated that competition in the market for TVC construction improved when XL was sold by CB&I
back to its original owners. Further, CB&I sold XL earlier this year, and in doing so CB&I lost the

ability to manufacture thermal shrouds, TVCs or cryogenic pumps for TVCs.

37



26. If any remedy imposed by this Court resulted in CB&I's exit from the
TVC market, it is entirely possible that no TVCs suppliers would exist in the United States,
causing a true hardship for TVC customers.

27
11152853


©

(d)  Cheniere
Cheniere, along with other partners, is developing a state-of-the-art,
LNG import terminal which will contain
Cheniere is currently in the process of

obtaining FERC approval for this project, and plans to solicit final firm price bids in

23


IN CAMERA



and PDM constructed both TVCs constructed in the U.S. between 1990 and 2001. Since 1998,

no TVCs have been constructed. A photo of a typical TVC is attached.

Ill. THE GOVERNING LEGAL STANDARDS FOR PERMANENT INJUNCTIONS
UNDER SECTION 7 OF THE CLAYTON ACT PLACE A HEAVY BURDEN ON
COMPLAINT COUNSEL.

To succeed on a Section 7 claim (15 U.S.C. Section 18), Complaint Counsel has the
burden of proving by a preponderance of the evidence: (1) the relevant product market or line of
commerce; and (2) that the effect of the challenged acquisition may be to substantially diminish

competition within the relevant market.’ See, e.g., New York v. Kraft Gen. Foods, Inc., 926 F.

Supp. 321, 358-59 (S.D.N.Y. 1995).
At all times, Complaint Counsel has the ultimate burden of persuasion in this case.

United States v. Baker Hughes, Inc., 908 F.2d 981, 982 (D.C. Cir. 1990); United States _v.

MP.M., Inc., 397 F. Supp. 78, 91 (D. Colo. 1975) (noting that the "burden to demonstrate a-

substantial lessening of competition or a tendency to create a monopoly lies . . . with the
plaintiff"). Should Complaint Counsel establish a prima facie case through market share
statistics, a burden shifting can occur with the burden of persuasion always ultimately residing
with Complaint Counsel. The D.C. Circuit, in Baker Hughes, 908 F.2d at 982-83, has succinctly
summarized the relevant standard:

By showing that a transaction will lead to undue concentration in
the market for a particular product in a particular geographic area,
the government establishes a presumption that the transaction will
substantially lessen competition. . . . The burden of producing
evidence to rebut this presumption then shifts to the defendant... .

* Although the Complaint challenges the Acquisition under both Section 7 of the Clayton Act and Section 5 of the
FTC Act, the legal standards under both statutes are the same. See, e.g., F.T.C. v. PPG Indus., Inc., 798 F.2d 1500,
1501 n.2 (D.C. Cir. 1986) (Section 5 is "for present purposes, . . . assumed to be merely repetitive of [Section 7] of
the Clayton Act"); R.R. Donnelley & Sons Co., 120 F.T.C. 36, 150 n.32 (1995) (noting that the "analytical standards
for assessing legality in this context are read coextensively").



Nada Sulaiman

Winston & Strawn

1400 L Street, N.W.
Washington, D.C. 20005
(202) 371-5700 (voice)
(202) 371-5950 (fax)
nsulaima@winston.com

Counsel for Respondents

Chicago Bridge & Iron Company N.V.
and Pitt Des-Moines, Inc.

59


6. CB&I's exit left PDM as the only competitor for field-erected TVCs in the
US. from 1984 until 1997.

7. CB&I attempted to reenter the TVC market in 1997 by acquiring XL
Systems ("XL"), but has not built a field-erected TVC since its reentry.

8. CB&I acquired XL because the
was looking to

9. CB&I has subsequently sold XL,

10. When CB&I sold XL, CB&I lost the ability to manufacture thermal
shrouds, TVCs or cryogenic pumps for TVCs.

11. Given the dormant market, the change in the HHI for field-erected TVCs
as a result of the CB&I merger is zero, which means Complaint Counsel cannot establish a
statistical prima facie case.

12. The satellite industry has excess capacity in its existing TVCs.

13. Most satellite manufacturers already have one or more of these chambers,
which have long lifespans. uses a TVC built and uses one built

14. Only two field-erected TVCs have been built in the U.S. since 1990.
(Harris Rpt., 150.)

15. | Demand for TVCs is in further decline for two reasons. First, demand for
commercial and government satellites is nearly non-existent.
Second, satellite sizes are shrinking, rendering the large, field-erected
TVCs obsolete.

16. Smaller shop-erected TVCs -- which CB&I does not make -- should be
adequate to test satellites in the future.

17. Industry participants expect that the low level of demand, driven even
lower by consolidation of the aerospace industry and the miniaturization of satellites, will
ultimately cause the number of TVC suppliers to shrink to one.


A. Complaint Counsel's Use Of 12 Year Old HHI Data Is Misleading And
Inaccurate.

As previously discussed, historical HHI data are relevant only if they are reflective of
current market conditions. The use of historical data is
irrelevant here because such data fails to account for the strong competitive pressures being
exerted by recent entrants in the markets today. Specifically, since the Acquisition, CB&I has

lost two LIN/LOX projects for BOC, one LIN/LOX project for Air Liquide,

By contrast, CB&I has
won only one competitively bid LIN/LOX job since the Acquisition and
LNG tank Yet, Complaint Counsel insists that these numerous

victories by CB&I's competitors should be dismissed. This argument simply has no merit.

The use of historical information is also irrelevant because the measuring period of
historical HHIs is subject to manipulation by Complaint Counsel. Complaint Counsel chooses to
measure HHIs using data since 1990. Complaint Counsel's expert economist relies on this
analysis in expressing his opinions regarding the alleged anticompetitive effect of the
Acquisition. The use of such old bids is contrary to the Merger
Guidelines, which state “[mJarket shares will be calculated using the best indicator of firms’
future competitive significance.” § 1.41. If Complaint Counsel and its
expert had chosen a reasonable measuring period of 1996 through the date of the Acquisition,
there would be no change in the HHIs for three of the four relevant markets: PDM has not built
an LNG tank in the U.S. since 1992; CB&I has not built a TVC in the U.S. since 1984; and prior

to the Acquisition, CB&I had not built an LPG tank in the U.S. since prior to 1996. (See supra at

34-40.)

45


treason, CB&I often subcontracts portions of an LNG job, as do its competitors.

e Fabrication -- Fabrication is not an entry barrier. Fabrication is
routine, and can be easily performed. Further, foreign

LNG tank builders can do the necessary fabrication. In some cases, these builders
can fabricate steel overseas more cheaply than in the U.S.

If fabrication were an entry barrier,
foreign entrants would not waste their money attempting to enter the U.S. market.
Their very presence belies Complaint Counsel's argument.

e FERC -- FERC is not an entry barrier. Dynegy and Cheniere
have used Skanska/Whessoe and Daewoo, respectively, to perform the tank
portion of the FERC application.

¢ Reputation -- Reputation is not an entry barrier. Virtually all
current customers believe that the foreign entrants have excellent reputations for
building LNG facilities, and that they can build those facilities in the U.S.

e Lack of experience -- Lack of experience in building LNG tanks
in the U.S. is not an entry barrier. Customers do not require that foreign tank
companies have previous experience building LNG tanks in the United States.

Further, Complaint Counsel contends that alliances between foreign LNG tank builders
and domestic companies will not have any effect on the competitiveness of foreign entrants.
This claim ignores the extensive size, experience, and reputation of cach

domestic partner. Customers have recognized this experience as relevant.

47


competitive pressure on that market." Id. at 987-988 (emphasis added). In other words, "if
barriers to entry are insignificant, the threat of entry can stimulate competition in a concentrated
market regardless whether entry ever occurs." Id. at 988. See also F.T.C. v. Procter & Gamble
Co., 386 U.S. 568, 581 (1967). The court also noted that "failed entry in the past does not imply
failed entry in the future: if prices reach supracompetitive levels, a company that has failed to
enter in the past could become competitive." Baker Hughes, 908 F.2d at 989 n.9; see generally
RR. Donnelley & Sons Co., 120 F.T.C. 36 (1995). The evidence at trial will show timely,
substantial, and sufficient entry has occurred since the merger closed.

Nearly two years of post-acquisition data conclusively establishes the sufficiency of
entry, which Complaint Counsel essentially ignores. Post-acquisition evidence is dispositive.
See, e.g., Baker Hughes, 908 F.2d at 989 (rejecting Government's merger challenge because two
new companies had recently entered the U.S. drilling rig market, winning one contract apiece
"and were poised for future expansion"); Syufy, 903 F.2d at 662-66 (rejecting Government's
merger challenge because movie theater owner opened up three new cinema multiplexes within a
13-month period, and within two years of the challenged acquisition was operating more screens
than previously). The Supreme Court and many other courts have recognized the utility of post-

acquisition evidence. See, e.g., United States v. General Dynamics Corp., 415 U.S. 486, 505,

506 (1974) (noting that post acquisition evidence tending to diminish the probability or impact of
anticompetitive effects might be considered in a Section 7 case); United States v. Archer-
Daniels-Midland Co., 781 F. Supp. 1400, 1421-22 (S.D. Iowa 1991); United States v.
International Harvester_Co., 564 F.2d 769, 778-81 (7th Cir. 1977). Probability of
anticompetitive effect is judged at the time of trial, which makes the consideration of post-

Acquisition evidence critical. Complaint Counsel, however, suggests that post-Acquisition

10