PUBLIC VERSION

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

 

DOCKET NO. 9300

In the Matter of

CHICAGO BRIDGE & IRON COMPANY N.V.,

et al.

 

 

COMPLAINT COUNSEL'S PRETRIAL BRIEF

 

 

Steven L. Wilensky

Cecelia M. Waldeck

Robert S. Tovsky

Michael A. Franchak

Hector Ruiz

Rhett R. Krulla Eric M. Sprague

Morris A. Bloom

Deputy Assistant Directors Counsel Supporting 

 the Complaint

J. Robert Robertson

Senior Litigation Counsel Jacqueline Tapp

Investigative Assistant

Susan Creighton Mary C. Forster

Deputy Director Merger Analyst

Joseph J. Simons Yasmine Carson

Director Honors Paralegal

Bureau of Competition
October 21, 2002
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. )

__________________________________________)

COMPLAINT COUNSEL’S PRETRIAL BRIEF

October 21, 2002
i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ..................................................... iv

INTRODUCTION ............................................................. 1

I. THE RELEVANT PRODUCT MARKETS ARE LNG TANKS, LNG IMPORT

TERMINALS, LNG PEAK SHAVING PLANTS, LPG TANKS, LIN/LOX/LAR TANKS,

AND THERMAL VACUUM CHAMBERS .................................... 6

A. Overview of the Relevant Products ...................................... 7

1. LNG Tanks .................................................... 7

2. LNG Import Terminals ............................................ 8

3. LNG Peak Shaving Plants .......................................... 9

4. LPG Tanks ..................................................... 9

5. LIN/LOX/LAR Tanks ........................................... 10

6. Thermal Vacuum Chambers ....................................... 10

B. There Are No Economic Substitutes for the Relevant Products ................... 11

II. THE RELEVANT GEOGRAPHIC MARKET IS THE UNITED STATES ........... 14

III. THE EVIDENCE OF MARKET SHARES, CONCENTRATION AND DIRECT

COMPETITION ESTABLISH A STRONG PRESUMPTION OF 

ANTICOMPETITIVE EFFECTS ........................................... 14

A. The Acquisition Greatly Increased Concentration in Highly Concentrated Markets ..... 15

1. Concentration in LNG Tanks ................................... 17

2. Concentration in LPG Tanks ................................... 18

3. Concentration in LIN/LOX/LAR Tanks ........................... 18

4. Concentration in Thermal Vacuum Chambers ....................... 18

B. The Acquisition Eliminated CB&I’s Most Substantial Competitor Among Differentiated

Competitors ..................................................... 19

1. The Evidence Demonstrates the High Level of 

Direct Competition Between CB&I and PDM ...................... 19

2. Other Firms Have Not Been Substantial Competitors to 

CB&I and PDM ............................................ 25
ii

3. By Eliminating its Closest Competitor, the Acquisition Likely 

Increases CB&I’s Market Power ................................ 27

C. The Structural Evidence Establishes a Strong Presumption of 

Anticompetitive Effects .............................................. 28

IV. CB&I’S ACQUISITION OF PDM REDUCED COMPETITION IN THE 

RELEVANT MARKETS ................................................. 29

A. Post-Acquisition Evidence Reflects the Anticompetitive Effects ................ 31

B. Other Firms Will Continue to Provide Only Weak Competition to CB&I 

In Each of the Relevant Markets ...................................... 35

1. CB&I Enjoys Cost Advantages Over Other Firms ................... 36

2. CB&I’s Years of Experience Also Reduces its Market Risks 

and Enhances its Reputation With Customers ....................... 38

3. New Joint Ventures Will Not Maintain the Competition that 

Had Existed Prior to the Acquisition ............................. 41

C. Industry Participants Predict Higher Prices for the Relevant Products 

as a Result of the Acquisition ......................................... 41

D. The Acquisition Increases the Ability of CB&I to Tie the Sale of its LNG 

Tanks to Additional Products and Services ............................... 43

E. New Entry Would Not Be Sufficient to Prevent Anticompetitive Effects .......... 45

V. RESPONDENT’S DEFENSES DO NOT OVERCOME COMPLAINT 

COUNSEL’S SHOWING OF LIKELY ANTICOMPETITIVE EFFECTS ........... 48

A. PDM Was Not an Exiting Company .................................... 48

B. Respondents’ Claimed Efficiencies Are Speculative

 and Are Unlikely to Be Specific to the Acquisition ......................... 53

VI. REMEDY ............................................................. 55

X. CONCLUSION ........................................................ 59
iii

TABLE OF AUTHORITIES

CASES:

American Medical Int’l, Inc., 

104 F.T.C. 1 (1984) .................................................. 36, 57

B.F. Goodrich Co., 110 F.T.C. 207 (1988) ........................ 6, 28, 29, 33, 57, 58, 59

Brunswick Corp., 99 F.T.C. 411 (1982) ............................................ 58

California v. American Stores, 

495 U.S. 271, 110 S. Ct. 1853 (1990) ....................................... 14

Citizen Publishing Co. v. United States, 

394 U.S. 131, 89 S. Ct 927 (1969) .......................................... 49

Coca-Cola Bottling Company of the Southwest, 

118 F.T.C. 452 (1995) ................................. 11, 14, 23, 24, 28, 29, 31

Continental Oil Co., 72 F.T.C. 850 (1967) ......................................... 58

Dean Foods Co., 70 F.T.C. 1146 (1966), 

modified as to order, 71 F.T.C. 731 (1967) ................................... 58

Eastman Kodak Co. v. Image Tech. Serv. Inc., 

504 U.S. 451 (1991) ..................................................... 32

Ekco Products Co., 65 F.T.C. 1163 (1964) ...................................... 58, 59

FTC v. Cardinal Health, Inc., 12 F. Supp. 2d 34 (D.D.C. 1998) ...................... 15, 29

FTC v. Elders Grain, 868 F.2d 901 (7th Cir. 1989) ................................... 11

FTC v. H.J. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001) .............................. 6, 53

FTC v. Indiana Fed'n of Dentists, 476 U.S. 447 (1986) ................................ 7

FTC v. Libbey, Inc., 211 F. Supp.2d 34 (D.D.C. 2002) ................................ 52

FTC v. PPG Indus., Inc., 798 F.2d 1500 (D.C. Cir. 1986) ............................. 15

FTC v. Staples, Inc., 970 F. Supp. 1066 (D.D.C 1997) ........................ 7, 27, 29, 45

FTC v. Swedish Match, 131 F. Supp.2d 151 (D.D.C. 2000) .......................... 7, 27

FTC v. University Health, Inc., 938 F.2d 1206 (11th Cir. 1991) ...................... 15, 53

H.J., Inc. v. Int’l Tel. & Tel. Corp., 867 F.2d 1531 (8th Cir. 1989) ........................ 11

Hospital Corp. of America v. FTC, 807 F.2d 1381 (7th Cir. 1986) .................... 15, 33
iv

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

aff’d 807 F.2d 1381 (7th Cir. 1986) ...................................... 28, 57

Jacob Siegel Co. v. FTC, 

327 U.S. 608, 66 S. Ct. 758 (1946) ......................................... 57

Kaiser Aluminum & Chem. Corp., 93 F.T.C. 764, 850 (1979), 

vacated and remanded on other grounds, 

652 F.2d 1324 (7th Cir. 1981) ........................................... 58, 59

Olin Corporation, 113 F.T.C. 400 (1990) .......................................... 48

Pepsico, Inc. v. The Coca Cola Co., 

114 F. Supp. 2d 243 (S.D.N.Y. 2000) ....................................... 32

Phillips Petroleum Co., 70 F.T.C. 456 (1966) ....................................... 58

R.R. Donnelley & Sons Co., 120 F.T.C. 150 (1995) .......................... 14, 27, 35, 36

Rebel Oil Co., Inc. v. Atlantic Richfield Co., 

51 F.3d 1421 (9th Cir. 1995), 

cert. denied, 516 U.S. 987, 116 S. Ct. 515 (1995) .............................. 45

Retail Credit Co., 92 F.T.C. 1 (1978),

rev'd on other grounds, sub nom. 

Equifax, Inc. v. FTC, 618 F.2d 63 (9th Cir. 1980) .............................. 58

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

aff'd, 602 F.2d 1317 (9th Cir. 1979), 

cert. denied, 445 U.S. 927, 100 S. Ct. 1313 (1980) ............................. 57

Seeburg Corp. v. FTC, 425 F.2d 124 (6th Cir. 1970), 

cert. denied, 400 U.S. 866, 91 S. Ct 104 (1970) ............................... 57
v

Times-Picayune Publishing Co. v. United States,

345 U.S. 594 (1953) ..................................................... 11

United States v. Baker Hughes, 908 F.2d 981 (D.C. Cir. 1990) ................... 17, 29, 45

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

aff’d 908 F.2d 981 (D.C. Cir. 1990) ......................................... 17

United States v. Coca-Cola Bottling Co. of Los Angeles, 

575 F.2d 222 (9th Cir. 1978), 

cert. denied, 439 U.S. 959, 99 S. Ct 362 (1978) ............................... 58

United States v. E.I. du Pont de Nemours & Co., 

366 U.S. 316, 81 S. Ct. 1243 (1961) ........................................ 57

United States v. Eastman Kodak Co., 63 F.3d 95 (2d Cir. 1995) ........................ 32

United States v. Franklin Electric, 

130 F. Supp. 2d 1025 (W.D. Wisc. 2000) ..................................... 47

United States v. United Tote, Inc., 768 F. Supp. 1069 (D. Del. 1991) .................. 39, 47

STATUTES:

Clayton Act, Section 7

15 U.S.C. § 18 ........................................................ 1, 6

Federal Trade Commission Act, Section 5

15 U.S.C. § 45 ........................................................ 1, 7

OTHER AUTHORITIES

Kwoka & Warren-Boulton, Efficiencies, Failing Firms 

and Alternatives to Merger: a Policy Synthesis, 

31 Antitrust Bull. 431 (1986) ............................................... 48

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

Antitrust Law ¶ 929c (rev. ed. 1998) ........................................ 11

U.S. Dept. of Justice & Federal Trade Comm’n, 

Horizontal Merger Guidelines (1992, rev’d 1997) .......................... passim
-1-

INTRODUCTION

On February 7, 2001, Chicago Bridge & Iron Company N.V. (“CB&I”) acquired the assets of

the Engineered Construction (“EC”) and Water Divisions of Pitt-Des Moines, Inc. (“PDM”). Prior to

the acquisition, and over a period of many years, CB&I and PDM were the leading U.S. producers of

large, field-erected (i.e., constructed on-site) industrial and water storage tanks, and other specialized

steel plate structures, and regularly bid against each other for new projects. By virtue of the acquisition,

CB&I eliminated its primary competitor and became the dominant supplier of these products for

customers in the United States. documents the two companies believed that

the acquisition would be anticompetitive. 

CB&I has taken advantage of its dominant position and improved its margins by imposing higher prices

and less favorable terms on customers. These anticompetitive effects will be felt in each of the relevant

markets as customers contract for the new projects that they expect to begin.

On October 25, 2001, the Commission issued its complaint in this matter, alleging that the

acquisition violates Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 5 of the FTC Act, 15

U.S.C. § 45, in six product markets for these field-erected structures: (1) liquefied natural gas (“LNG”)

storage tanks, (2) LNG import terminals, (3) LNG peak shaving plants, (4) liquid nitrogen, oxygen and

argon (“LIN/LOX/LAR”) storage tanks, (5) liquid petroleum gas (“LPG”) storage tanks, and (6)

thermal vacuum chambers. With the exception of thermal vacuum chambers, these products are, or

include as essential components, large industrial storage tanks for storing gases in liquid form at either

low or extremely low (cryogenic) temperatures.

LNG tanks are very large, field-erected storage tanks that use special designs and alloys that
-2-

allow them to store large amounts of LNG at temperatures around -260° F. LNG tanks are essential

components of LNG import terminals, which receive LNG from large, ocean-going transports, and

LNG peak shaving plants, which store LNG to meet seasonal, peak demand requirements for natural

gas users (collectively, “LNG tanks and facilities”). 

LIN/LOX/LAR tanks are similar in design to LNG tanks, but are not as large. LNG and

LIN/LOX/LAR tanks are collectively referred to as “cryogenic storage tanks.” LPG tanks, also

referred to as “low temperature” or “refrigerated tanks,” store LPG at temperatures of -50° F. CB&I

and PDM often refer to LNG, LIN/LOX/LAR, and LPG tanks collectively as “LTC” (low temperature

and cryogenic) tanks.

Thermal vacuum chambers are large, field-erected chambers that simulate the environment of

outer space (high vacuum and extreme cold and extreme heat) and are used for testing satellites and

other aerospace and defense equipment. Thermal vacuum chambers, while not storage tanks, require

many of the same skills associated with the design and construction of field-erected LTC tanks.

The relevant products have no economic substitutes. Once the volume that a customer requires

for a storage tank reaches a certain level, field-erected vessels are the only economic alternative. 

Moreover, each of the relevant products is specially designed for the product it holds. The geographic

market for the relevant products is the United States. Field-erected tanks and thermal vacuum

chambers for use by customers in the United States must be erected at customer sites in the United

States.

Prior to the acquisition, CB&I and PDM were the two leading competitors in the relevant

markets, each of which was highly concentrated. No supplier other than CB&I or PDM has
 

1

 The one exception was in LIN/LOX/LAR tanks, where Graver had a market share of 

based on its sales between 1990 and 2001. However, Graver declared bankruptcy and its assets were

liquidated in 2001.

-3-

constructed an LNG tank in the U.S. since the mid-1970's, and no supplier other than these two firms

has ever constructed a field-erected thermal vacuum chamber. Those fringe firms that are active in the

relevant markets, i.e., all firms other than CB&I and PDM, collectively account for less than 

percent of the LPG tanks, and of the LIN/LOX/LAR tanks, as measured by dollar sales of tanks to

be built in the United States in the period from 1990 until the time of the acquisition.

Before the acquisition, CB&I and PDM were the only U.S. suppliers with extensive experience

over the past 25 years in the construction of these specialized structures. Moreover, these two firms

offered the lowest-cost, turn-key construction services to their customers because they were the only

two U.S. firms that were vertically integrated into all phases of tank and facility construction. 

Consequently, in relevant markets comprised of competitors differentiated by their relative experience

and degree of vertical integration, CB&I and PDM were the two closest competitors.

CB&I and PDM regularly bid against each other to secure new contracts in all of the relevant

markets, and consistently made the bid proposals that offered the most favorable terms for customers. 

Because these two companies were so similar in their capabilities, each firm had to try to make sure it

was competitive with the other. On the other hand, the few fringe competitors rarely offered terms that

were competitive with CB&I and PDM, and almost never succeeded in winning contracts.1 Thus,

CB&I and PDM simply did not need to be concerned about the competition from these other firms. 

The competition between CB&I and PDM was so important that, in these highly concentrated markets,
 

2

 Although the Merger Guidelines explicitly discuss “open auction” bidding, in which the seller has

perfect information, the fact that the seller in this case has imperfect information does not fundamentally

alter the analysis. It simply means that the price is likely to approach the cost of the second lowest-cost

seller.

-4-

the acquisition resulted in a substantial loss of competition, and therefore is likely to have

anticompetitive effects. Thus, Complaint counsel’s evidence establishes a strong presumption of

anticompetitive effects.

The acquisition has eliminated PDM, which was the most formidable bidder against CB&I in

each of the relevant markets. Consequently, the bidding processes upon which customers have relied

in securing supply have become less competitive. Since the acquisition, customers have been forced

either to contract with CB&I as the only alternative for the relevant products, or to try to contract with

some of the fringe firms that - although they have bid on projects - have consistently been inferior

competitive alternatives. Because the acquisition eliminated PDM, which had been its closest

competitive constraint, CB&I will now be bidding against firms that have been uncompetitive on pricing

and on other terms. As a result, CB&I will not need to be as competitive in its bid proposals. This

anticompetitive effect is described in the Merger Guidelines: 

A merger involving the first and second lowest-cost sellers could cause prices to rise to the

constraining level of the next lowest-cost seller.

Merger Guidelines § 2.21, n.21.2 Thus, following the acquisition, in order to have an alternative

bidder to CB&I, customers must consider the proposals from other fringe firms. Relieved of the

pressure to compete against PDM, CB&I can continue to secure contracts while increasing its pricing

up to the higher levels quoted by these less competitive firms. Thus, the choice that customers have
-5-

been left - to deal with CB&I or with a less competitive firm - is a choice that reflects the diminished

competition after the acquisition. 

In order to conclude that the elimination of the ongoing competition between CB&I and PDM

is not likely to lessen competition, it would be necessary to find that the fringe competitors - who have

consistently demonstrated themselves inferior over a period of more than a decade - have in each of the

relevant markets suddenly overcome all of the obstacles that made their bids inferior to PDM’s in

bidding for business in the U.S. However, those current fringe competitors, whether foreign or

domestic companies, are unlikely, any time in the near future, to develop the capabilities they need to

replace PDM as a competitor to CB&I. The presence of these firms, even if they continue to bid on

new projects, will therefore not be sufficient to restore the level of competition that had existed prior to

the acquisition. The fringe suppliers will tend to have higher costs than PDM had, lack the experience

to compete effectively, and lack the reputation for quality and reliability that customers consider critical

in selecting suppliers. As a result, it would be many years before fringe competitors would consistently

be able to offer the competitive pricing that PDM had provided. For the same reasons, entry of new

firms is also highly unlikely to restore the competition that had existed between CB&I and PDM.

 acquiring PDM

would allow it to become the dominant supplier in the relevant markets. Furthermore, a wide range of

witnesses, citing the long history of competition between CB&I and PDM and the lack of comparable

competitive alternatives, attest that the merger would reduce competition significantly in these markets,

leading to higher prices.

Respondents’ expert witness has asserted that, absent the acquisition, PDM was likely to exit
-6-

the relevant markets. Respondents may make that argument as a defense to the allegations of the

Complaint. However, that defense is without merit. First, respondents cannot meet the burden of

demonstrating that PDM, after one unprofitable year which followed several years of profitable activity,

was at risk of financial failure. Furthermore, PDM made absolutely no effort to find an alternative

purchaser, and in fact actively discouraged other potential bidders. The reason PDM looked for no

buyers other than CB&I is precisely the same reason that Complaint counsel’s underlying case is so

strong: CB&I was willing to pay a premium price to eliminate its main competitor, and therefore was

able to make a pre-emptive bid, which foreclosed any possibility of finding other potential buyers.

In summary, the evidence shows that CB&I’s acquisition of the EC and Water Divisions of

PDM violates Section 7 of the Clayton Act, and Section 5 of the FTC Act, in the relevant markets. As

set out in the Commission’s Notice of Contemplated Relief, CB&I must now be required to divest all of

the assets it acquired from PDM, and take other steps necessary to reestablish two distinct and

separate, viable and competing businesses in the relevant markets, including restoring plant and

equipment, rehiring personnel, and taking other steps to reestablish the PDM EC and Water divisions

as they existed prior to February 7, 2001.

I. THE RELEVANT PRODUCT MARKETS ARE LNG TANKS, LNG IMPORT

TERMINALS, LNG PEAK SHAVING PLANTS, LPG TANKS, LIN/LOX/LAR

TANKS, AND THERMAL VACUUM CHAMBERS

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

affecting commerce . . . [if] the effect of such acquisition may be substantially to lessen competition, or

to tend to create a monopoly." 15 U.S.C. § 18. To establish a Section 7 violation, Complaint counsel

must show that an acquisition would “create a reasonable likelihood of anticompetitive effects.” B.F.
 

3

 < http://www.chicagobridge.com/lotemp.html> (visited Oct. 18, 2002).

-7-

Goodrich Co., 110 F.T.C. 207, 288-89 (1988); see FTC v. H.J. Heinz Co., 246 F.3d 708, 713

(D.C. Cir. 2001) ("Congress used the words 'may be substantially to lessen competition' . . . , to

indicate that its concern was with probabilities, not certainties. . . . The Congress has empowered the

FTC, inter alia, to weed out those mergers whose effect ‘may be substantially to lessen competition’

from those that enhance competition.”). Section 5 of the FTC Act also prohibits, as an unfair method

of competition, acquisitions that violate Section 7 or threaten to harm consumers. FTC v. Indiana

Fed'n of Dentists, 476 U.S. 447, 454, 106 S. Ct. 2009, 2016 (1986).

To predict whether an acquisition may substantially lessen competition or tend to create a

monopoly under Section 7 of the Clayton Act, the Commission and courts consider (1) the product

market in which to assess the transaction; (2) the geographic market in which to assess the transaction,

and (3) the transaction's probable effect on competition in the product and geographic markets. See

FTC v. Swedish Match, 131 F. Supp.2d 151, 156 (D.D.C. 2000); FTC v. Staples, Inc., 970 F.

Supp. 1066, 1072 (D.D.C. 1997).

A. Overview of the Relevant Products

1. LNG Tanks

LNG storage tanks are large, field-erected cryogenic tanks that store natural gas or methane at

a temperature of -260° F. Due to these very cold temperatures, LNG storage tanks use special

materials, such as 9% nickel alloy steel, and special designs so that they will not crack.3 LNG tanks are

double-walled, with special perlite insulation between the two shells, and are built with an earthen berm
 

4

 <http://www.chicagobridge.com/lotemp.html> (visited Oct. 18, 2002);

<http://www.chicagobridge.com/lotemp_tanks.html> (visited Oct. 20, 2002).

 

5

-8-

or some form of concrete containment for safety reasons.4 An LNG tank often has a diameter of 200

feet or more, typically holds 15 million gallons or more of LNG, and may cost as much as $13 million

or more.5 LNG tanks are integral components of LNG import terminals and LNG peak shaving plants,

described below.

Two basic types of LNG tanks have been used in the U.S.: structures with double steel-walls

(referred to as single containment tanks), and structures with an inner steel tank partially or fully

enclosed by an outer concrete shell (referred to as double containment or full containment tanks). 

Virtually all of the LNG tanks now in operation in the U.S. utilize the single containment design. 

2. LNG Import Terminals

LNG import terminals are designed to unload and store LNG from LNG ocean tankers. LNG

is stored in the LNG tanks, pumped out, vaporized and injected into pipelines for transmission to end

users. The terminals include LNG storage tanks, fire protection systems, ship

loading/unloading facilities, send-out facilities and vapor handling systems. 

There are currently four LNG import terminals located in the continental U.S., the most recent

of which was built in 1982, and one import terminal in Puerto Rico. Dynegy Inc. has announced plans

to construct another import terminal in Hackberry, Louisiana, which would become operational by the

end of 2006. Other companies have also announced plans to construct

LNG terminals in the U.S. RX 40 (Cheniere Energy has plans for 3 LNG import terminals on the U.S.
 

6

 In addition to new facilities, the owner of a currently idle LNG import facility located at Cove

Point, Maryland plans to add a new LNG tank as part of a plan to reactivate that facility.

 

7

 Yankee Gas is currently considering constructing an LNG peak shaving plant in Waterbury,

Connecticut. 

-9-

Gulf Coast).6 CB&I believes that the outlook in North America for new LNG tanks and import

facilities is excellent due to the increased demand for LNG. 

3. LNG Peak Shaving Plants

LNG peak shaving plants store LNG to provide a reserve of LNG for periods of peak demand

to assure that gas customers do not experience a shortage of natural gas. LNG

peak shaving plants consist of a liquefaction unit, where the gas is turned into liquid, LNG storage

tanks, and a vaporization unit in which the liquid LNG is returned to a gaseous state before discharge to

the pipeline. In LNG peak shaving facilities, natural gas from a pipeline is refrigerated in the liquefaction

unit and accumulated in liquid form in an LNG tank during the warmer months when demand and prices

are low. As gas demand increases in colder months, the stored LNG is heated,

vaporized and put back into the supply stream to meet heating demand peaks, when prices are high. 

There are about 65 LNG peak shaving plants located in the U.S., most of which were

constructed in the 1970s and early 1980s. The last LNG peak shaving plant constructed in the

U.S., the Pine Needle plant in Stokesdale, North Carolina, was completed in May 1999. 

 Four LNG peak shaving plants were constructed in the U.S. from 1990-2000.7

4. LPG Tanks

LPG tanks are large, field-erected tanks that store refrigerated liquids such as propane, butane,

propylene and butadiene at temperatures of around -50° F. Some LPG tanks,
 

8

 

9

 

10

 

11 . The thermal vacuum chamber that PDM built for 

 is , weighs more than one million pounds,

and costs about million. .

-10-

particularly those that are part of LPG import terminals, are very large. In , PDM completed an

LPG tank for LPG import terminal in . . This tank is 

 in diameter and cost between million. 

5. LIN/LOX/LAR Tanks

LIN/LOX/LAR tanks are large, field-erected tanks, each of which stores a specific liquid gas

product, such as hydrogen, oxygen, nitrogen, argon and helium at cryogenic temperatures ranging from

-260° F to -450° F. They are similar in design to LNG tanks, but smaller. 

LIN/LOX/LAR tanks typically hold 400,000 to 1,000,000 gallons of liquid gas products and cost

$500,000 to $1 million each.8 Over 100 of these tanks have been built since 1990. 

6. Thermal Vacuum Chambers

Thermal vacuum chambers are large, vault-like chambers that simulate the environment of outer

space and are used for testing satellites and other aerospace and defense equipment.9 They are

constructed to support vacuum conditions and withstand extreme changes in temperature ranging

between approximately -320° F and +350° F.10 Thermal vacuum chambers with diameters greater

than approximately 20 feet must be field-erected because of their size.11

One thermal vacuum chamber has been built since 1990, by PDM for 
-11-

 . In , CB&I won the contract to construct a thermal vacuum chamber for 

 . This project is currently on hold, awaiting financing. Market participants expect to source

new thermal vacuum chambers over the next several years. 

B. There Are No Economic Substitutes for the Relevant Products

The relevant product market includes those products for which “sellers, if unified by a

hypothetical cartel or merger, could raise prices significantly above the competitive level.” Coca-Cola

Bottling Company of the Southwest, 118 F.T.C. 452, 540 (1994), quoting H.J., Inc. v. Int’l Tel. &

Tel. Corp., 867 F.2d 1531, 1537 (8th Cir. 1989). Market definition is an exercise to distinguish close

competitive constraints from distant ones, so that the analysis can then proceed to examine whether the

merger significantly reduces competition among close constraints. See 4 P. Areeda, H. Hovenkamp &

J. Solow, Antitrust Law ¶ 929c (rev. ed. 1998). Thus, “[a] market is the set of sellers to which a set

of buyers can turn for supplies at existing or slightly higher prices.” FTC v. Elders Grain, 868

F.2d 901, 907 (7th Cir. 1989) (emphasis added). Therefore, the market "must be drawn narrowly to

exclude any other product to which, within reasonable variations in price, only a limited number of

buyers will turn." Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 612 n.31, 73 S.

Ct. 872, 882 n.31 (1953). 

The Merger Guidelines approximate the ultimate question of constraint by seeking to identify

alternatives to which consumers likely would turn in the event of a small price increase. The Merger

Guidelines take the smallest possible group of competing products and ask whether a "hypothetical

monopolist over that group of products would profitably impose at least a 'small but significant and

nontransitory' [price] increase." Merger Guidelines §1.11. If customers of the relevant products
-12-

would not reduce consumption of the relevant products by an amount sufficient to make the price

increase unprofitable, the market is established. Merger Guidelines § 1.11.

 In his expert report, respondents’ expert witness, Dr. Barry Harris, “accepted the product

markets defined in the complaint.” Harris Report ¶ 16. Thus, there appears to be no dispute between

Complaint counsel and respondents that LNG tanks, LNG import terminals, LNG peak shaving plants,

LPG tanks, LIN/LOX/LAR tanks, and thermal vacuum chambers are relevant product markets.

There are no economic substitutes for these products. 

 Consequently, buyers would not turn to substitutes in

response to a significant increase in their price. Smaller, less-expensive, shop-manufactured versions of

LNG tanks, LPG tanks, LIN/LOX/LAR tanks, and thermal vacuum chambers do not provide a

competitive constraint. These shop-manufactured structures are assembled within a fabrication facility

and shipped to the customer. Even witnesses for respondents concede that these small tanks are not

economic substitutes for the large, field-erected versions of the relevant products manufactured by

CB&I. 

Shop-manufactured tanks are more economical than field-erected tanks only if the required

storage volume is small. LIN/LOX/LAR customers such as 

 have found that for storage above approximately 50,000 to

100,000 gallons, field-erected cryogenic tanks are much more economical than shop-fabricated tanks

for storing liquid air elements. 

A one million-gallon field-erected cryogenic storage tank, for example, would require twelve 80,000-

gallon shop-fabricated tanks. Using multiple, shop-manufactured tanks instead of one
 

12 Multiple piping and metering systems would render the shop-manufactured alternative

uneconomical for projects with large volume storage requirements. 

-13-

large, field-erected tank would impose large costs.12 

 new LPG storage facility for 

 may most economically employ several large field-erected spheres, rather than tens of small shopbuilt pressure vessels. ); (shop-manufactured tanks preferred for smaller volume

projects and field-erected tanks generally not cost-effective at volumes less than 150,000 gallons). 

Industry participants believe that the price of field-erected tanks would need to increase by a very large

amount before shop-erected tanks could be considered an economic substitute. 

In LNG tanks, one customer, stated that it has considered offloading

LNG tankers directly into natural gas pipelines, bypassing storage in the LNG tank. However, this

method of operation would have substantial volume limitations and operating cost penalties compared

to maintaining tank storage. It is not an economic substitute for LNG import terminals in areas that

have large volume requirements. Similarly, building more pipeline

capacity is not an economic alternative to building LNG tanks or peak shaving plants. 

Because there are no economic alternatives to the relevant products, there is little doubt that

CB&I could profitably impose on its customers a significant increase in price. In other words, such a

price increase would not cause a substantial amount of substitution by customers to alternatives other

than field-erected tanks. 

II. THE RELEVANT GEOGRAPHIC MARKET IS THE UNITED STATES 

The relevant geographic market is “the smallest region within which a hypothetical monopolist
 

13 PDM differentiate between the domestic and international LNG markets

and identify separate competitors for each market. 

 CBI is PDM EC’s domestic competition for LNG tanks. 

-14-

could ‘profitably impose at least a ‘small but significant and nontransitory’ increase in price.’” CocaCola Bottling, 118 F.T.C. at 575, quoting Merger Guidelines § 1.21. The Merger Guidelines

define the relevant geographic market as:

a region such that a hypothetical monopolist that was the only present or future producer of the

relevant product at locations in that region would profitably impose at least a “small but

significant and nontransitory” increase in price, holding constant the terms of sale for all

products produced elsewhere.

Merger Guidelines § 1.21. In this case, the products are by definition erected on the ground at

customers’ locations within the United States, so the competition must occur among suppliers present in

the United States. The companies themselves recognize that the competition occurs on a regional

basis.13

As a result of these factors, the relevant geographic market is the United States. Respondents’

economic expert, Dr. Harris, accepts the geographic market of sales to customers in the United States.

Harris Report ¶ 17.

III. THE EVIDENCE OF MARKET SHARES, CONCENTRATION AND DIRECT

COMPETITION ESTABLISH A STRONG PRESUMPTION OF

ANTICOMPETITIVE EFFECTS

In order to establish a violation of Section 7, Complaint counsel is required to show that

anticompetitive effects are “probable,” even if not a “certainty.” R.R. Donnelley & Sons Co., 120

F.T.C. 36, 150 (1995), citing California v. American Stores, 495 U.S. 271, 284, 110 S. Ct. 1853,

1861 (1990) (“[P]laintiff need only prove that the [acquisition’s] effect may be substantially to lessen
 

14 The HHI is calculated by summing the squares of the market shares of all firms in the market. 

Merger Guidelines § 1.5.

-15-

competition.”) (emphasis in original). "Section 7 does not require proof that a merger or other

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

create an appreciable danger of such consequences in the future." Hospital Corp. of America v.

FTC, 807 F.2d 1381, 1389 (7th Cir. 1986). 

CB&I’s acquisition of PDM has led to very large concentration increases and has eliminated

CB&I’s most substantial and most successful competitor in each of the relevant markets. These factors

make it highly likely that the acquisition will reduce competition.

A. The Acquisition Greatly Increased Concentration in Highly Concentrated

Markets

Because of the competitive risks they create, mergers that significantly increase market

concentration to extremely high concentration levels are presumed to be unlawful. Merger Guidelines

§ 2.0. See also Hospital Corp. of Am., 807 F.2d at 1389. Market concentration may be measured

by determining the market shares of industry leaders or by calculating the Herfindahl-Hirschman Index

("HHI"). FTC v. PPG Indus., Inc., 798 F.2d 1500, 1503 (D.C. Cir. 1986); FTC v. University

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

measuring market concentration); Staples, 970 F. Supp. at 1081-82; FTC v. Cardinal Health, Inc.,

12 F. Supp.2d 34, 53-54 (D.D.C. 1998); Merger Guidelines § 1.5.14 A merger that results in an

HHI over 1800 indicates a highly concentrated market; it is presumed that mergers producing an

increase in the HHI of more than 100 points in such markets are likely to create or enhance market

power or facilitate its exercise. Merger Guidelines § 1.51.
 

15 Firms that have had no sales over that period are accorded a 0% market share.

-16-

The first step in measuring market concentration is identifying the firms that participate in the

relevant market. Id. at § 1.31. To be as inclusive as possible, Complaint counsel has included in our

analysis all firms, whether foreign or domestic, that are identified by respondents as currently bidding for

projects in the relevant markets. The second step is calculating market shares. Id. at § 1.4. Because

sales of the relevant products are made infrequently, Complaint counsel has examined market shares

not just for the last year, or even the last few years, but for a period of over twelve years, from 1990 to

the time of the acquisition in early 2001.15 Accord id. at § 1.41 (“[W]here 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.”). 

Complaint counsel’s approach to measuring market shares is different from that proposed by

respondents’ expert, who implies that even those firms which, although they have bid in the U.S., have

never won a bid for a new contract for over ten years are equally “qualified” with CB&I to compete

for new contracts, and therefore assigns to each such firm an equal market share. Harris Report ¶ 28. 

In the view of respondent’s expert, therefore, the fact that CB&I and PDM have almost always

prevailed over other bidders in seeking new contracts has virtually no relevance to analyzing market

shares in this case. As we discuss in detail below, however, the only competition that CB&I now faces

is from companies that have had very little success in the marketplace in securing contracts for a period

of over a decade. Their failure to succeed has a great deal to do not only with how “qualified” those

firms are to compete and what their market shares should therefore be, but also with the likely

competitive effects of the acquisition. 
 

16 In Baker Hughes, the Court of Appeals criticized the government for examining market shares

only over a three-year period from 1986-1988 in a small market, where market shares were “volatile

and shifting,”and easily skewed. 908 F.2d at 986. Measuring market share over a long period of time

is also consistent with the importance that customers place on reputation and experience in these

markets, as discussed infra. Competitors regularly present to customers experience lists referencing

projects that were built as long as thirty years ago. 

 

17 Respondent’s expert criticized Complaint counsel’s choice of a cut-off date for market shares,

claiming that if Complaint counsel had chosen as a cut-off date for measuring market shares,

PDM would have a market share in the LNG tank market, CB&I would have , and there

would be change in the HHI. (Harris Report ¶ 82a). This approach is exactly the type criticized in

Baker Hughes, as it ignores the fact that, prior to the acquisition, CB&I and PDM were almost always

the only two bidders on LNG tanks and won every LNG project in the U.S. since . 

-17-

Even though other firms have tried to compete with CB&I and PDM for new contracts over the

period covered by Complaint counsel’s evidence, the fact is that in each of the relevant markets, CB&I

and PDM have each accounted for over of all sales made over the last 10 years.16 In LNG

tanks and thermal vacuum chambers, these two firms have together accounted for all of the sales. 

Thus, although examining the market shares of these firms for only a short period of time would not be

sufficient to take “an accurate measure of market dominance,” because market shares could vary from

year to year, the sustained high market shares of CB&I and PDM over such an extended period of

time serves to demonstrate reliably the competitive significance of these two firms in the relevant

markets.17 U.S. v. Baker Hughes, 731 F. Supp. 3, 9 (D.D.C. 1990), aff’d 908 F.2d 981 (D.C. Cir.

1990).

1. Concentration in LNG Tanks

CB&I and PDM supplied all of the LNG tanks constructed in the U.S. since 1990. The

acquisition increases the HHI, as measured by U.S. sales of LNG tanks, by , from to

10000. 
-18-

2. Concentration in LPG Tanks

CB&I and PDM erected out of the fourteen LPG tanks constructed in the U.S. since

1990. The acquisition increases the HHI, as measured by dollar sales of LPG tanks in the U.S., by 

 , from to 8380. CX 1153 at Attachment D (Simpson).

3. Concentration in LIN/LOX/LAR Tanks

CB&I and PDM combined supplied about of the LIN/LOX/LAR tanks constructed in the

U.S. since 1990. Graver, the only other substantial constructor of LIN/LOX/LAR tanks during a

portion of that period, supplied approximately of the LIN/LOX/LAR tanks during the relevant

period. However, after declaring bankruptcy during 2001 and liquidating its production facilities,

Graver has exited the market. The other current suppliers, which together built the remaining 

 of the LIN/LOX/LAR tanks constructed, are Matrix Services and American Tank & Vessel. The

acquisition increases the HHI, as measured by dollar sales of LIN/LOX/LAR tanks in the U.S., by 

 , from to 5845. Id. at Attachment F.

4. Concentration in Thermal Vacuum Chambers

CB&I and PDM supplied all of the thermal vacuum chambers constructed in the U.S. since

1990. PDM built one chamber for , while won a contract to construct a

chamber for . The project 

 . The acquisition the HHI, as measured by dollar amounts of winning bids for

thermal vacuum chambers in the U.S., by , from to 10000. Id. at Attachment E.
-19-

B. The Acquisition Eliminated CB&I’s Most Substantial Competitor Among

Differentiated Competitors 

The high level of direct competition between CB&I and PDM heightens the competitive

concerns associated with the large increases in concentration, for in markets where the products offered

by firms are differentiated, mergers between firms that are particularly close competitors are much more

likely to reduce competition. Merger Guidelines § 2.21. The Commission presumes that if the

combined market shares of the merging firms reaches 35%, “a significant share of sales in the market

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

choices.” Id. at § 2.211. Here, not only do the combined market shares far exceed that level, but the

continued success of CB&I and PDM in securing contracts in the relevant markets, over an extended

period of time, makes it abundantly clear that CB&I and PDM were each other’s most direct

competitors in the relevant markets. Respondents and the views of third

parties confirm this conclusion.

In this case, the suppliers of relevant products are highly differentiated in their ability to supply

customers, based on factors such as their pricing competitiveness and their reputation for consistently

building, on a timely basis, quality tanks for U.S. customers. In these differentiated markets, CB&I and

PDM have, for over a decade, been the most competitive bidders and suppliers of cryogenic and low

temperature tanks to U.S. customers for new projects in each of the relevant product markets. 

Because the acquisition would eliminate the competition that has existed between these two close rivals,

the likelihood of anticompetitive effects is high. 

1. The Evidence Demonstrates the High Level of Direct Competition

Between CB&I and PDM 
-20-

As Dr. Simpson, Complaint counsel’s expert economic witness, has described, most of the

customers make sourcing decisions based on some type of competitive bidding process among

potential suppliers. CX 1153 ¶ 31 (Simpson). The record of the firms selected as the winning bidders

in these processes, for the period from 1990 to the time of the acquisition in early 2001 demonstrates

that CB&I and PDM have been far and away the leading suppliers in the relevant markets. 

- Seven LNG tanks were built in this period; CB&I built , valued at almost million,

and PDM built , valued at almost million. Id. at Attachment C.

- 109 LN/LOX tanks were built in this period; CB&I built , valued in total at

approximately million, and PDM built , valued in total at over million. 

Graver built , valued in total at almost million, Matrix built , valued in total at

almost million, and ATV built , valued at over million. Id. at Attachment F. 

As discussed supra page 18, Graver has exited the market, and its assets have been

liquidated.

- Twelve LPG tanks were built in this period; CB&I built , valued in total at over 

million, and PDM built , valued in total at almost million. Morse Tank built 

 , valued at slightly over million, and ATV built ,

valued at . CX 1153, Attachment D (Simpson). CB&I acquired Morse Tank in

December 2001.

- One thermal vacuum chamber was built in this period, and projects were

contracted; CB&I prevailed in one of the projects, valued at approximately million,

and PDM prevailed in the other, valued at approximately million.

Thus, except in rare circumstances, the only other firms that continue to have any market presence,

however small, have simply been unable to compete viably against CB&I and PDM.

In each of the relevant markets, pricing is determined by the competition for individual projects. 

Depending on the competitive process that the customer uses, suppliers will have different levels of

information about the competition for the project. No matter what the scenario, the presence of PDM

as CB&I’s closest competitor played a key role in CB&I’s pricing decisions. Where CB&I knew that
-21-

PDM was bidding, it could make a decision on whether to try to beat PDM. Even in instances where

CB&I may not have known who the other bidders were for a particular project, CB&I’s assessment

that PDM may have been bidding, and its experience in bidding against PDM would itself have been

information that affected the pricing levels that CB&I relied upon in developing its own bid proposals. 

CB&I would have used this information to formulate a bid that would strike a balance between the

price necessary to be competitive with the likely competition and the price that would generate the most

attractive returns. As PDM would have been CB&I’s closest competitor, it therefore would have been

the firm that had the greatest impact on how CB&I bid even when CB&I did not know specifically who

the other bidders were. 

 

Thus, the competition between CB&I and PDM to secure new contracts benefitted customers

in all of the relevant markets by serving to maintain pricing levels. Because PDM regularly offered

pricing and terms either better than or at least comparable to CB&I, that competition required CB&I,

in order to secure contracts for new projects, to develop proposals for customers that would be

competitive with what it believed PDM would offer. For example, PDM was able to secure a contract

to build a thermal vacuum chamber, only after its initial bid in response to a 

 bid from CB&I. 

 Respondents’ documents also reveal that they were intense,

head-to-head competitors in the other relevant markets, including LNG, LPG and LIN/LOX/LAR. 

 

 proceed into a classic head-to-
-22-

head price war with PDM and CBI 

 [CB&I] 

 are in a very competitive situation and need to save every dollar 

 

 

budget prices are always higher than PDM’s, PDM always beats their budget price. 

 PDM, was the very

low bidder and met all of the technical requirements. In fact, prior to the acquisition, competition was

so intense from PDM on LIN/LOX/LAR tanks that it caused CB&I to bid at margins for

these projects. 

Customers in each of the relevant markets found the competition between CB&I and PDM

critical to determining the level of pricing. Customers that purchase thermal vacuum chambers 

 absent the competition between CB&I and PDM, would have been forced to pay much

higher prices. 

head-to-head price competition between CB&I and PDM
-23-

 PDM would likely not have

decreased its price

 Absent CBI’s and PDM-EC’s competition, 

would have been forced to pay at least 50 percent more and to accept lower quality

materials and services. Further, the competition has spurred product

innovations in thermal vacuum chambers. intense competition between

CB&I/XL and PDM/PSI led to develop several thermal control innovations which will cut

the operating costs of its thermal vacuum chamber by . 

that CB&I presented many innovative engineering solutions . 

 In LIN/LOX/LAR tanks, customers found PDM to be almost always more competitive on

pricing than CB&I. In LPG tanks, also, PDM had typically quoted lower prices

than CB&I. And in LNG tanks, CB&I

and PDM fiercely competed for these projects.

Based on their experience in competing for projects for over 25 years in the construction of

these specialized structures, CB&I and PDM recognized each other to be their most substantial

competitor. CB&I PDM’s only competitor for projects in the

U.S. CBI is PDM EC’s only competitor on domestic cryogenic, LNG, LPG, Ammonia 
 

18 The companies’ business documents provide a highly reliable means to establish the high level of

direct competition between CB&I and PDM. In Coca-Cola Bottling, for example, the Commission

relied heavily on such evidence in concluding that an acquisition created unilateral effects:

CCSW’s business records reveal that CCSW viewed Mr. PiBB as the closest

substitute to and a direct competitor of Dr. Pepper. 

118 F.T.C. at 607.

 

19 Western

Hemisphere-CBI & PDM EC are two main players bid against each other a lot 

-24-

spheres and thermal vacuum projects. 18 PDM believed that CBI is PDM EC’s

major competitor considering all of the markets PDM EC serves CBI and PDM EC are often the

only competitors for international and cryogenic storage contracts. 

 PDM is main

competitor in turnkey LT&C market. When CB&I began assessing the PDM

acquisition, of the acquisition described PDM as a formidable competitor to

CB&I in LNG/LPG tanks and terminals, spheres and vacuum chambers. 19

CB&I and PDM competed intensely with each other for new projects. 

 likened the CB&I/PDM rivalry to the Crips vs. Bloods or the Jets vs.

Sharks. 

PDM had been a particular thorn in CB&I’s side, for it had been able to obtain a cost

advantage over CB&I and regularly set prices below CB&I’s. PDM’s lower costs forced CB&I to
-25-

reduce its own prices or risk losing business to PDM. 

 beating CBI for years in this market

 PDM had been consistently quoting prices that were simply too low. 

 CB&I’s internal documents also reflect these competitive concerns. 

 strategy to combat PDM

 PDM is a low-cost producer in some of its product segments. 

 Thus, rather than working to bring its own costs down to PDM’s level, CB&I simply chose

to acquire PDM.

2. Other Firms Have Not Been Substantial Competitors to CB&I and

PDM

The historical record demonstrates that customers have consistently been willing to have firms

other than CB&I and PDM bid on projects. However, when those customers have solicited bids, the

fringe firms - foreign and domestic - typically have been uncompetitive on pricing and therefore have

been distant competitors behind CB&I and PDM. If customers had considered those firms to be
 

20 In 1994, for example, Memphis Light, Gas and Water put an LNG peak shaving plant, including

a cryogenic storage tank, out for bid. 

 

 

21 When sought bids for a LIN/LOX tank project, submitted bids

that were significantly higher than the bids submitted by CB&I and PDM. 

 When tried to partner with a U.S.

-26-

comparable competitors to CB&I and PDM, then as Complaint counsel’s economic expert has shown,

it would be virtually impossible, purely as a matter of probability, for customers to have repeatedly

selected CB&I and PDM at the level that they did. Thus, because customers have almost always

chosen not to do business with other firms, they have made it clear that CB&I and PDM provided their

leading alternatives among the companies bidding to secure contracts for new projects. CX 1153

¶ ¶ 75, 95, Attachments C, D (Simpson).

Since 1990, and until the merged CB&I and PDM

 not one overseas firm has been successful in competing for new projects in any of the relevant

markets. 

 In the cases where foreign firms have bid on U.S. projects in the relevant markets, their bids

have been much higher than the bids of CB&I and PDM for both LNG projects20 and other projects.21
construction firm , its bids became even less competitive. 

-27-

Over the same period since 1990, the domestic firms that constitute CB&I’s competition today have

also failed to capture any business in LNG tanks and thermal vacuum chambers. In total, these existing

firms have captured only about percent of the total revenues from the different projects that have

been awarded in LIN/LOX/LAR, and percent of the revenues from LPG tanks.

3. By Eliminating its Closest Competitor, the Acquisition Likely Increases

CB&I’s Market Power

It is the competition between CB&I and PDM that has served to maintain the level of pricing,

and also has served to ensure a sharp and continuing emphasis on service and innovation. The record

of competition between CB&I and PDM, and the success of these companies in winning contracts,

therefore provides “information that directly reflects customers’ actual preferences” for sourcing from

either of those two rivals. Donnelley, 120 F.T.C. at 196. Since the evidence of actual competition

establishes the level of close competition that existed between CB&I and PDM in the relevant markets,

it also demonstrates the strong likelihood that CB&I, by virtue of eliminating PDM as a rival for future

projects, will be able to exercise market power and increase price. “The closeness of the merging

firms’ products has a critical effect on the profitability of a post-merger price increase because the more

closely substitutable are two products (relative to their substitutability with other products), the greater

is the degree to which substitution away from each of the products will be ‘internalized’ by the merged

firm.” Id. See Swedish Match, 131 F. Supp.2d at 169 (“the weight of the evidence demonstrates that

a unilateral price increase by Swedish Match is likely after the acquisition because it will eliminate one
-28-

of Swedish Match’s primary direct competitors.”); Staples, 970 F. Supp. at 1083 (“The merger would

eliminate significant head-to-head competition between the two lowest cost and lowest priced firms in

the superstore market.”).

C. The Structural Evidence Establishes a Strong Presumption of Anticompetitive

Effects

The acquisition eliminated competition between the two most significant rivals in the relevant

markets, and increased concentration to levels far in excess of the thresholds which the Merger

Guidelines state raise competitive concerns. The Commission has consistently found that such large

increases in concentration in an already highly concentrated market create the strongest competitive

concerns. Hospital Corp. of Am., 106 F.T.C. 361, 488 (1985), aff’d 807 F.2d 1381, 1384 (7th Cir.

1986) (finding increases in concentration “in an already concentrated market to be of serious

competitive concern”); Coca-Cola Co., 117 F.T.C. 795, 943 (1994) (high HHI’s create “serious

competitive concerns”). 

The market share evidence, together with the evidence of direct competition between CB&I

and PDM, therefore serves to establish the likely anticompetitive effects of the acquisition:

One premise underlying antitrust jurisprudence is that, absent other factors, a firm’s

market power is likely to increase as its market share increases, and that its market

power relative to other market participants increases as its share becomes

disproportionately larger than the shares of other market participants.

See Coca-Cola Bottling, 118 F.T.C. at 587.

Complaint counsel’s structural evidence therefore establishes a strong presumption that the

acquisition would lessen competition and therefore is illegal under Section 7. Coca-Cola Bottling, 118

F.T.C. at 586 (high HHIs “create a strong presumption of possible anticompetitive effects); Goodrich,
-29-

110 F.T.C. at 314 (post-acquisition HHIs, which were less than 1800, are 
 

22

 

 Could face anti-trust risks Could create competition void for 1-3 years and that 

Customers could get upset. 

-30-
-31-

However, CB&I apparently gave no reason to believe that the price of million was

not competitive, and accepted the million bid. Subsequently, CB&I 

the price at which the project had recently sold, rather than its internal lower cost

calculation, to prepare its price estimate to 

 and to justify increasing the price for an LNG tank

A. Post-Acquisition Evidence Reflects the Anticompetitive Effects 

In the short period of time since CB&I acquired PDM, some of the foreign firms and other

domestic bidders have continued to solicit business in some of the relevant markets. Respondents’

expert, Dr. Harris, contends that the presence of these firms demonstrates that customers have

practical alternatives to the merged firm and that CB&I faces significant competitive constraints. Harris

Report ¶ 10. Notwithstanding Dr. Harris’ contention, the fact that post-acquisition, some customers

are being forced to seriously consider, and in some cases switch to, these alternative and historically

inferior competitors does not show a lack of competitive harm from the acquisition. Rather than

supporting respondents’ expert’s claim that the acquisition has had no competitive effect, the evidence

simply reflects that the acquisition has put customers “in the position of having to switch to less desirable
 

23 As the Commission described in the analogous situation in the Coca-Cola Bottling case,

where the acquisition led to the elimination of one of the two soft-drink brands that had competed most

directly because they were most alike in flavor and marketplace position, the consumers who had

preferred those two brands to all other brands were made “less well off.” 118 F.T.C. at 609.

 

24

 See also United States v. Eastman Kodak Co., 63 F.3d 95, 103 (2d Cir. 1995) (“[A]

monopolist . . . always faces a highly elastic demand; its products are so overpriced that even inferior

substitutes begin to look good to consumers.”); Pepsico, Inc. v. The Coca Cola Co., 114 F. Supp.2d

243, 257 (S.D.N.Y. 2000) (“[the] existence of significant substitution in the event of further price

increases or even at the current price does not tell us whether the defendant already exercises significant

market power.’” (quoting Eastman Kodak Co. v. Image Tech. Serv. Inc., 504 U.S. 451, 471

(1991)).

-32-

alternatives.” Coca-Cola Bottling, 118 F.T.C. at 609.23

While other firms in the past have been uncompetitive with CB&I and PDM due to their higher

pricing, any success that CB&I’s competitors may have in the current environment demonstrates that

since CB&I has eliminated PDM, which had been its closest competitor, the only remaining

alternatives are higher-priced and less experienced firms.24 The efforts by customers to maintain some

alternative to CB&I should not, however, be mistaken for evidence that the competition that occurs

today remains as intense as the competition that had existed between CB&I and PDM. Thus,

Complaint counsel’s expert, Dr. Simpson, has followed the reasoning of the Commission’s decision in

Coca-Cola Bottling, and has described how the continued competition from these consistently inferior

alternatives reflects CB&I’s increased market power. CX 1153 ¶ ¶ 35-38 (Simpson).

In particular, CB&I, after eliminating PDM, does not need to be as competitive as it had

previously been in order to secure new contracts. Even if CB&I, in some cases, has imperfect

information about its competitors for a particular piece of business, it will always know one key fact -

that it has eliminated PDM as its key competitor. As such, it can even in those cases increase the
 

25 Accordingly, the “Commission... was not required to take account of a post-acquisition

transaction that may have been made to improve Hospital Corporation’s litigating position.” 807 F.2d

at 1384; see also Goodrich, 110 F.T.C. at 340-41. 

-33-

pricing levels in its bid proposals to customers to reflect the important fact that the next-best proposal

will not likely be as competitive as PDM’s would have been. While customers may continue to seek to

have an alternative bidder to CB&I, therefore, the fact is that when the competitive alternatives become

less favorable than PDM had been, the terms of sale that customers are able to obtain also become less

favorable. Id. Dr. Simpson cited the experience of one customer, , who awarded a LIN

tank contract to , simply because that customer did not want to be held hostage by CB&I. 

 if CB&I and PDM had continued to compete, he would have been less likely to

award the bid to . See id. at ¶ 138 (Simpson)

Complaint counsel is not required to demonstrate that the acquisition has led to actual postacquisition price increases. Rather, the Commission and courts are cautious in evaluating postacquisition pricing evidence because respondents can, during the pendency of this proceeding too easily

manipulate prices to avoid the appearance of the exercise of market power. “Post-acquisition evidence

that is subject to manipulation by the party seeking to use it is entitled to little or no weight.” Hospital

Corp. of Am., 807 F.2d at 1384.25 However, the evidence of pricing that has occurred since the

acquisition provides additional evidence of CB&I’s market power. Prior to the acquisition, CB&I

regularly included margins in its budget estimates for LNG peak shaving projects 

 and lower margins of for the LNG tank portion of the project. 

 Post-acquisition, however, CB&I has included margins in some of its budget
 

26

When competitors expressed concerns about giving their bids to , an

LNG tank competitor, designated as having sole responsibility for

evaluating the LNG bids. Even after making this arrangement,

-34-

estimates both for LNG peak shaving projects and for LNG tanks. 

 (Simpson Rebuttal) (citing CB&I’s increased margin for LNG project for 

 , and high priced quote on LNG project for . As described

by the Complaint counsel’s economic expert, in addition, some customers in the relevant markets have

cited post-acquisition pricing increases by CB&I. 

(Simpson) (citing testimony by and by representatives of 

 

Respondents’ expert has emphasized that in connection with 

 the only bidders approved to participate in the final bid

on the LNG tank were . However, that situation does not help Respondents’ case, since

in this instance CB&I for LNG tanks, despite repeated requests

from the customer that it do so. 

 

Because did not want to have the LNG tanks necessarily tied to the overall project manager,

it ultimately selected which agreed to seek

competitive bidders for the LNG tanks, as overall project manager.26 
CB&I did not submit a separate bid for the LNG tanks. By the time CB&I finally

expressed some interest in bidding for the LNG tanks alone, had closed the bidding process. 

 To date, the tank business has not yet been awarded.

 

27 This case contrasts to the situation in Donnelley, where the Commission relied on evidence that

because “the customers for whom the merging firms were first and second choices represent a minor

portion of a proposed relevant market,” the other firms “should be expected to reposition with alacrity.”

120 F.T.C. at 198. The evidence in this case establishes that although other firms have bid against

CB&I and PDM, it has been the rare occassion when they have succeeded. Unlike Donnelley, there

is no track record of substantial and successful competition from other firms. Rather, the conclusion

that the historical record suggests is that other firms will not likely provide as effective a constraint on

-35-

Ultimately, therefore, the choice that was forced on the customer by virtue of CB&I’s decision not to

bid certainly does not suggest that the customer, has been able to maintain the level of

competition that would have existed but for the acquisition.

B. Other Firms Will Continue to Provide Only Weak Competition to CB&I In

Each of the Relevant Markets 

In order to rebut the strong presumption of anticompetitive effects, respondents must

demonstrate that other firms will be sufficient to restore the competition that had existed between CB&I

and PDM in each of the relevant markets alleged in the Complaint. However, the few marginal

competitors, who, despite years of effort have gained only a small fraction of the sales of CB&I and

PDM, do not have capability to “reposition” their product lines to replace PDM and maintain the level

of competition that had existed prior to the acqusition. Merger Guidelines § 2.212. Even if other

firms continue to bid against CB&I, as they have in the past, they cannot be expected suddenly to begin

offering terms as competitive as PDM had. Because CB&I and PDM were so clearly the firms that

customers found to be most competitive, the mere presence of these other fringe firms, therefore, will

not be restore the level of competition that had existed prior to the acquisition.27
CB&I as PDM had provided.

-36-

CB&I believes that “[p]rice, quality, reputation, safety record and timeliness of completion are

the principal competitive factors within the industry.” CX 1021 at 36. Based on these factors, CB&I is

the most cost-effective potential supplier for customers in all of the relevant markets. It enjoys

significant cost advantages over both foreign and domestic competitors, is a more experienced

competitor which faces less market risk, and has a reputation among customers for providing reliable

products on a timely basis. Other firms, therefore, simply cannot consistently compete effectively in the

U.S. against CB&I. See American Medical Int’l, Inc., 104 F.T.C. 1, 201 (1984) (because smaller

hospitals did not have facilities equivalent to the combined company, and failed to provide “a full range

of hospital services,” the Commission concluded that “[a]s a result of the acquisition of the French

hospital, AMI faces little or no competition in either market.”). See also Donnelley, 120 F.T.C. at 195

(“In the context of localized competition, unilateral competitive effects may result from . . . a merger

between rival sellers that have similar advantages in serving a particular group of buyers.”). 

1. CB&I Enjoys Cost Advantages Over Other Firms

CB&I enjoys significant cost advantages in building high-quality and reliable products over the

competitors which now must be relied upon - instead of PDM - to provide a competitive alternative. 

Foreign competitors, such as Technigaz, Whessoe and TKK for LNG tanks, face significantly higher

costs than either CB&I or PDM to compete for contracts in the U.S. because, unlike CB&I and PDM,

they would need to rely extensively on more expensive subcontracting for construction services, 

 and for the fabrication of steel components. 
 

28 A construction team for an LNG tank, for example, would likely consist of people. 

 For a foreign competitor, importing its own work force would likely be costprohibitive. 

-37-

 

28 Subcontracting is more expensive because it

adds to the number of companies which must earn an independent profit from a single project. Dr.

Simpson referred to these added costs as “double marginalization.” Subcontracting significant aspects

of facility construction also increases the risk of error and the possibility of delay in the projects. 

 Industry participants recognize the importance of self-performing all aspects of project

construction. It is for these reasons that

these foreign firms - although quite competitive and successful in their home markets - have always

been inferior competitive alternatives in the U.S.

Domestic competitors, such as , also face higher costs in the markets in which they

attempt to compete, primarily LIN/LOX/LAR and LPG tanks. began bidding on

LIN/LOX/LAR tanks in and since that time successfully constructed tanks for 

 . However, has sold the fabrication facility it used to build these tanks, and

its costs have increased significantly as it must subcontract fabrication work for these tanks. 

 Since despite bidding on 

LIN/LOX/LAR projects in the U.S., has become a high priced bidder and has not won any

contracts. 

Furthermore, CB&I’s successful completion of so many projects has provided it with the

benefits of the learning curve inherent in its continuing experience in building tanks, which provides it
 

29

 

 also states that some of its customers would not consider to be an acceptable alternative. 

-38-

with an additional source of cost advantages over other firms in each of the relevant markets. In

contrast to CB&I, fringe competitors have completed far fewer projects in the U.S., and simply have

not had the opportunity to gain the experience that CB&I has had. 

 For example, like

began bidding on LIN/LOX/LAR tanks in , but did not win its first contract until 

when it won a contract to construct a pair of LIN/LOX/LAR tanks for . With its limited

experience in constructing LIN/LOX/LAR tanks, is simply not as adept in building these tanks as

cost effectively as CB&I. Customers do not expect either to be able to replace

PDM as a very effective competitor in LIN/LOX/LAR tanks.29 

2. CB&I’s Years of Experience Also Reduces its Market Risks and

Enhances its Reputation With Customers

CB&I’s years of experience in bidding on and completing projects also provides it with the

ability to minimize the level of commercial risks for its customers’ operations as well as its own

operations. In order to limit the risk of financial (and potentially human) losses associated with product

failure, customers in each of the relevant markets prefer to source from suppliers who have a track

record of completing multiple projects that have operated successfully over many years. In thermal

vacuum chambers, for example, a problem with the construction of the chamber can damage satellites

worth hundreds of millions of dollars, or cause a satellite manufacturer to miss a delivery deadline,

triggering expensive liquidated damages clauses. 
 

30

 Customers are typically testing satellites costing $50MM to $200MM in

thermal vacuum chambers costing $5MM-$20MM. Therefore the choice of equipment and supplier is

often based on the need for advanced technology, equipment reliability, overall system operability and

ease of use, coupled with the industry record of the supplier’s performance.

 

31 LNG tanks and thermal vacuum chambers are often bid as fixed price contracts, where the

customer is given a bid for the completed project, based on the builder’s estimated costs. 

 There is significant,

inherent risk in valuing the bid. An inexperienced supplier that underbid an LNG tank or a thermal

vacuum chamber could incur significant losses if it encountered difficulties completing the project and

found that its costs were greater than it had anticipated. 

 pursuing

world scale LNG projects as the lead contractor, states downside is that risk level can be high,

-39-

 Thus, the main customers - in each market

alleged in the Complaint - place a great deal of emphasis on dealing with established suppliers, and

would be reluctant to give business to a new supplier, even in the face of a significant cost differential. 

 

30

 See United States v. United Tote, Inc., 768 F. Supp. 1069, 1076-

78 (D. Del. 1991) (recognizing the importance of reputational barriers in the market for software used

by racetracks for pari-mutuel betting, where a 10% increase in the cost of the software is far less than

the loss that would be incurred by the racetrack if the software should fail). Because of the liability

associated with choosing a tank supplier, customers are willing to pay a higher price to obtain a more

reputable supplier. 

CB&I’s experience also provides it with advantages over other firms in estimating the costs of

projects,31 in complying with the requirements of multiple safety codes and regulations,32 and in
the resource commitment even to bid is high, and the competition strong.

 mistakes in estimate (items missing), among the factors that can

negatively affect a contract’s profitability. Having built several LNG tanks in the

United States, CB&I and PDM are not subject to the same bid estimation risk as a firm that lacked that

experience. 

 

32

 

 LNG facilities built in the U.S. have specific code requirements that

are not necessarily applicable in foreign countries. 

 Customers are aware of the advantage that

CB&I has over foreign competitors in the U.S. through its extensive experience in making FERC filings. 

 CBI brings unmatched experience in preparing the documents describing the facility that

are necessary for permitting and/or filings for FERC authorization permits. Virtually all major LNG

facilities in the United States (including Puerto Rico) that have required FERC submittals have been

created by CB&I or its recent acquisition (PDM). 

 the permitting agencies, most

especially FERC, know and respect. 

 

33

 

 

34 For example, delays in gaining regulatory approval can be extremely costly for customers, 

 as can be delays in construction schedules in general. 

The quickest way to get on the gas industry’s manure list and never build another USA peak shaving

facility is not to have an LNG peak shaving facility ready for the winter weather it is supposed to

handle. There is absolutely no acceptable excuse for missing a peak shaving season and causing a gas

company to pay demand penalties.

 Because of the financial risks associated with LNG projects, owners often demand

large liquidated damages provisions for late project completion. 

 liquidated damages

provisions of per day for late completion of the first tank of an LNG project . 

Other LNG projects and thermal vacuum chambers require performance bonds. 

 performance bond required for LNG peak shaving project .

-40-

completing projects on schedule.33 All of these factors go directly to a firm’s ability to manage its

business in order to compete effectively to meet the needs of U.S. customers.34
 

35 Moreover, a foreign competitor that entered into the U.S. by subcontracting portions of its

operations could not itself perform all phases of project construction, which would adversely affect its

reputation. CB&I predominantly self-erects its products with 

 crews, employing traveling craftsmen and supplemented by local laborers. Prior to the

acquisition, PDM also self-performed most aspects of tank construction. 

 

36 the company has constructed low

temperature and cryogenic terminal facilities and low temperature and cryogenic field erected

tanks. 

-41-

The fringe competitors in the U.S., who do not have the experience and track record of CB&I

or PDM, simply cannot be as effective competitors as those companies had been.35 Indeed,

recognizing how important its experience is to potential customers, CB&I makes sure that potential

customers are fully aware of its vast experience, by maintaining and distributing lists of projects that it

has successfully completed.36

3. New Joint Ventures Will Not Maintain the Competition that Had

Existed Prior to the Acquisition

Respondent’s expert, Dr. Barry Harris, has stated that some overseas firms have established

joint ventures, with domestic construction partners, to pursue LNG projects in the U.S. Harris Report

¶ ¶ 50-53. What Dr. Harris fails to note is that even these joint ventures would surely operate at a

higher cost than either CB&I or PDM. Unlike CB&I and PDM, the domestic partners that the foreign

LNG firms have chosen for field-erection have never even constructed an LNG tank. 

 As a result, these firms would not have the benefits that CB&I and PDM have from their

extended experience in completing many LNG tanks over time, experience which, due to “learning

curve” effects, translates directly into better operating procedures and lower costs. 
-42-

 Furthermore, there is simply no reason to conclude that firms that have no experience in

working together will be able to compete as effectively as a fully integrated firm that has a long

experience competing in the relevant markets. Indeed, a U.S. industrial tank constructor,

concedes that even after partnering with an experienced LNG tank firm, it can not

construct turn-key LNG projects and continues to suffer some impediments in competing in the U.S.

market. 

C. Industry Participants Predict Higher Prices for the Relevant Products as a

Result of the Acquisition

 the acquisition has made the marketplace less

competitive. Prior to the acquisition, CB&I’s budget estimates regularly included margins of for

LNG peak shaving projects and margins of for the

LNG tank portion of the project. Post-acquisition, however, some

of CB&I’s budget estimates have included margins for both LNG peak shaving

projects and for LNG tanks. 

Furthermore, numerous customers and other industry participants - in each of the relevant

markets - have stated that they believe that the acquisition reduced competition. Customers therefore

are concerned about the pricing levels on new projects that they plan for the near future. 

 relating to thermal vacuum chambers, is typical of these concerns:

Because of the increased demand for larger satellites, will likely need to purchase additional
 

37

 

 

38

 

 some of it customers would not consider to be an acceptable

alternative. For example, an employee with LNG responsibilities at 

 wrote:

While could provide a reasonable argument that CB&I has competition in the US, especially in

the conventional metal tank business, the reality for today is that in the US, 

they are the leading company in the LNG Tank business and the other competitors will need to

demonstrate their capabilities in the market.

-43-

large thermal vacuum chambers in the near future. Because of CB&I’s acquisition of PDM, fear

that CB&I will be able to increase its price by at least million to million for the next thermal

vacuum chamber purchases.

 

37 Industry participants do not believe that other

firms will be able to replace the lost competition in a way that would maintain prices in any of the

relevant markets.38 

D. The Acquisition Increases the Ability of CB&I to Tie the Sale of its LNG

Tanks to Additional Products and Services

CB&I has historically tied the sale of its LNG tanks for both LNG import terminals and LNG
-44-

peak shaving plants to turn-key construction, as the Project Manager, of the rest of the facility. CB&I

typically will not bid its LNG tanks separately because it does not want to sponsor competition from

other potential Project Managers, 

In a conversation inquiring as to the possibility of purchasing an LNG tank from CB&I, 

 need for a U.S. tank supplier damaged its competitiveness:
-45-

CB&I responded to 

 would not offer tank-only pricing to competitors for LNG facility inquiries

which we are also building turn-key.

Similarly, which bid the process portion of the 

project in conjunction with approached CB&I about having it build

tanks, principally for LNG import facilities. After meeting with 

 executives, CB&I’s business development manager 

Many customers, prefer competitive bidding of LNG

and LPG projects. 

 These customers believe that purchasing tanks through a Project Manager in a

lump sum turn-key contract increases their costs. 

 By acquiring its closest competitor in the U.S., CB&I has increased its ability to

convince customers to go with lump sum, turn-key contracts, because the next best choice is a foreign

LNG tank constructor that has never built an LNG tank in the U.S. 

E. New Entry Would Not Be Sufficient to Prevent Anticompetitive Effects
-46-

The analysis of the conditions of entry by potential new competitors into a relevant market is

part of a determination of the likely anticompetitive effects of any acquisition, because if entry is

unlikely, the merged entity can raise prices without attracting new competition. Merger Guidelines

§ 3.0. See Staples, 970 F.Supp. at 1086. In assessing the conditions of entry, the ultimate issue is

whether entry is so effective that it "would likely avert anticompetitive effects from [the] acquisition.”

Baker Hughes, 908 F.2d at 989. 

The Merger Guidelines articulate the conditions under which entry would likely avert

anticompetitive pricing. Entry is considered "easy" if it would be "timely, likely and sufficient in its

magnitude, character and scope to deter or counteract the [anti]competitive effects" of a proposed

transaction. Merger Guidelines § 3.0, quoted with approval, Rebel Oil Co., Inc. v. Atlantic

Richfield Co., 51 F.3d 1421, 1440 (9th Cir. 1995), cert. denied, 516 U.S. 987, 116 S. Ct. 515

(1995). Entry is timely if a new entrant would have a significant market impact within two years.

Merger Guidelines § 3.2. Entry is likely if it would be profitable at premerger prices, and if the entrant

were able to secure sales at those prices. Id. at § 3.3. Entry is sufficient if the entrant has the assets

necessary to fully respond to the available sales opportunities created by the exercise of market power. 

Id. at § 3.4. 

In this case, new entry would not be timely, likely, or sufficient to counteract the anticompetitive

effects of the acquisition. Because sales of the relevant products are irregular and infrequent, a

prospective entrant would require a substantial base of revenue in the sale of general industrial tanks to

finance marketing and bidding efforts in the relevant markets and to be able to retain experienced

personnel. Therefore, the prospective entrant would need to be able to enter successfully into these
 

39 CB&I’s and PDM’s industrial

and water divisions engage in extensive sharing of metal fabrication facilities, field erection equipment,

and field erection crews. Consequently, there are substantial

economies of scale and scope between the relevant products and both the industrial and water storage

tanks. CB&I low-margin and slow-growth business in ambient temperature tanks,

pressure spheres and process vessels is necessary to maintain in order to be able to compete in the

higher margin low-temperature cryogenic tanks business. 

 

40 CB&I argues that there are many

fabrication plants that have the capability to fabricate LNG tanks and other relevant products. 

However, currently does not have a fabrication

facility with all of the capabilities necessary to fabricate LNG tanks and LIN/LOX/LAR tanks. 

 analyzing the possibility of subcontracting for fabrication

services in the Gulf Coast region CBI is the only competitor in the area who has the

equipment to blast and paint.

 

41

 

-47-

other tanks markets in order to obtain the necessary economies of scale and scope required to be a

cost-effective competitor.39 However, large-scale new entry into all of those markets is highly unlikely,

because industrial tanks markets in general are growing slowly and generate low margins, and because

the acquisition did not create any additional sales opportunities in those markets.

The most likely new entrants are firms that already produce industrial tanks, but do not produce

low-temperature cryogenic tanks. However, those firms, with absolutely no experience attempting to

compete in the relevant markets, are even less likely to be effective competitors to CB&I than the few

fringe competitors which have collectively had only a minor market impact. See supra, Section IV.B. 

Such a new entrant would likely need to take the risks of investing up-front in additional new plant

equipment,40 and hire additional experienced personnel to simply get to the point where they have the

same capabilities as one of the current fringe suppliers.41 Thus, industrial tank suppliers that do not
 

42

 More experienced suppliers like CB&I need only eight months to construct a

LIN/LOX/LAR tank. 

 

43 In submitted a bid of for LIN/LOX/LAR tanks to . 

-48-

produce relevant products cannot be relied upon to provide entry that would be sufficient to restore

competition.

Furthermore, it would take many years for a new competitor to have enough of a significant

market impact to restore competition. Simply to bid on and construct a single tank, such as an LNG

tank, would take two years or more. 

Developing the in-house design, engineering and construction capabilities to bid would itself require

close to two years.42 Although began bidding on LIN/LOX/LAR tanks in 

 

43 it is only now, years later, in the process of constructing its first LIN/LOX/LAR

tanks. Moreover, because of the significant reputational barriers that exist in the industrial tank market,

a new entrant would have to successfully design, bid and build a tank before it could exert any

competitive influence on the market. See United States v. United Tote , Inc., 768 F. Supp. 1064,

1068 (D. Del. 1991); see also United States v. Franklin Electric, 130 F. Supp.2d 1025, 1031-32

(W.D. Wisc. 2000). To develop the level of experience to replace the competition eliminated by the

acquisition, a firm would need to build several such tanks over a period of many years.
 

44 Rather than attempt to meet the requirements of the failing firm defense, respondents may also

attempt to assert simply that PDM was exiting the market. In contrast to the failing firm defense, the

requirements of which are described explicitly in the Merger Guidelines, the "exiting asset" defense,

which has been advanced as a replacement to the traditional failing company defense by some

commentators, requires proof only that absent the merger, the acquired firm's assets would shortly

leave the market, and that the acquiring firm is the only available purchaser. See Kwoka & WarrenBoulton, Efficiencies, Failing Firms and Alternatives to Merger: a Policy Synthesis, 31 Antitrust Bull.

431 at 445-46 (1986). In Olin, the Commission characterized the exiting asset defense as a “novel”

legal theory. While declining to address the merits of the theory, the Commission stated: “[i]n short, the

facts would not support the description of the proposed defense, even if we adopted the defense, and

we decline to do so in this case.” Olin Corporation, 113 F.T.C. 400, 618 (1990).

-49-

V. RESPONDENT’S DEFENSES DO NOT OVERCOME COMPLAINT COUNSEL’S

SHOWING OF LIKELY ANTICOMPETITIVE EFFECTS 

A. PDM Was Not an Exiting Company

CB&I’s economic expert asserted that, absent the acquisition, PDM may well have exited the

relevant markets, or alternatively, that PDM would have been a weakened competitor. 

 He therefore concludes that it is doubtful that [PDM] would now be a viable independent bidder

on projects in the tank markets. 

Dr. Harris’ report suggests that respondents are likely to assert that PDM EC was failing, and

that the acquisition was the only way to preserve the assets. In order to establish a failing firm or failing

division defense, respondents must establish that the firm (or division) was on the brink of financial

failure, and that there were no alternative purchasers available that would have been less

anticompetitive. Merger Guidelines §§ 5.1-5.2. Applying these criteria, these defenses are

unavailable to respondents in this case.44 

Neither PDM as whole, nor its EC division, were failing at the time of the acquisition. PDM
 

45 Nonetheless, management endeavored to divide up the company and sell off its divisions for

estate planning purposes.

-50-

historically was a profitable company.45 

The company’s EBITDA increased from to in the years between 1994 and

1999. Similarly, PDM EC historically was a profitable division within PDM. The

division’s EBIT increased from to in the years between 1995 and 1999. 

 2000 was a poor year for both PDM and CB&I, due

to a cyclical downturn in spending by petrochemical companies and other factors. PDM 

had EBITDA of . 

 However, as late as February 7, 2001, the date CB&I acquired PDM’s EC and Water

divisions, PDM projected that the EC division would in 2001 earn EBIT of . Following the

acquisition, CB&I’s 

 PDM was a successful company in the engineering construction business. 

 they had capabilities, they performed services that

were acceptable to those people that were behind those services, and they made money, and they were

attractive to their investors. After looking at CB&I’s and PDM’s engineering construction

businesses in detail, that the companies’ cost structures are quite similar.

Moreover, CB&I cannot meet its requirement to show that CB&I is the only available

purchaser for PDM’s EC and Water Divisions. Citizen Publishing Co. v. United States, 394 U.S.

131, 138, 89 S. Ct. 927, 931 (1969). although PDM believed

other companies would be interested in the EC division, PDM did not make an active attempt to sell
 

46

 

-51-

the division to another entity prior to reaching a deal with CB&I. 

 called PDM, and

informed him of his interest in purchasing PDM. told 

 that PDM already had a buyer and would call him if that deal fell through. 

Thus, PDM did not take the steps necessary to find an alternative purchaser to CB&I. PDM’s

investment banker could recall sending its offering memorandum to only one

company - CB&I. By the time the offering memorandum was

completed, PDM had already entered into a letter of intent with CB&I or was close enough to that

point that it didn’t make sense to send it out to other people. 

46

 
 

47 Thus, as of August 18, 2000, over ten parties had received the Confidential Memorandum for

Steel Distribution and groups had received Bridge Division books.

-52-

By way of contrast, contacted or planned to contact strategic buyers for PDM’s Steel

division and strategic buyers for PDM’s Bridge division. 47 

 never initiated the process of contacting any other potential buyers for the PDM EC division,

because they had already reached what they believed was a good deal with CB&I. 

One reason that not even contact any other potential purchasers was the high price

that CB&I was willing to pay. CB&I initially agreed to pay for the EC and Water

divisions, at the of preliminary estimates.

 it is doubtful that PDM could achieve a value exceeding in an

alternative transaction. Alternative buyers would unlikely pay a premium price for

the EC division because they would face continued tough competition from CB&I. 

 Need informed

buyer willing to fund war with CB&I 

As late as February 7, 2001, the date CB&I acquired PDM’s EC division and Water divisions, 

 concluded that on a
 

48 The only evidence supporting that proposition is PDM’s 

 An acquisition by CB&I of PDM’s Water

Division, including assets necessary for the competitive operation of PDM EC, would have raised

antitrust concerns similar to those raised by the acquisition of the combined divisions. See FTC v.

Libbey, Inc., 211 F. Supp.2d 34, 45-50 (D.D.C. 2002). 

 

49

 

 

50 the amount of money that can be realized through a liquidation is

difficult to predict. estimated the liquidation value of the

EC division at between and , a range of about . 

-53-

discounted cash flow basis, the value of PDM’s EC and Water divisions was 

million to , and that PDM would prefer to sell both Divisions in one deal. 

 Having concluded that sale to a competitor would yield a higher price than sale to an

alternative buyer, there were few potential buyers who

competed with PDM in both water and EC and that few competitors had adequate resources to buy

both divisions. Further, it would likely be costly and

difficult to separate the two Divisions, PDM’s EC and Water Divisions could be marketed

independently in stand-alone transactions.

Respondents cannot demonstrate, therefore, that absent the acquisition PDM EC would have

been liquidated and exited the relevant markets. 48 At best, such a liquidation was simply one

possibility.49 However, liquidation is risky and is the option of last resort. 

 

50 Therefore, prior to moving to

liquidation, it would have made some more calls to try to find another buyer. The only reason it
-54-

had not already made those calls was that CB&I, which was willing to pay a premium price to eliminate

its main competitor, had preempted any need to look to alternative purchasers.

B. Respondents’ Claimed Efficiencies Are Speculative and Are Unlikely to Be

Specific to the Acquisition

It is well-established that the Commission will give consideration only to cognizable

efficiencies. Cognizable efficiencies are merger-specific efficiencies, assessed net of costs, that are

verifiable and do not arise from anticompetitive reductions in output or service. Merger specific

efficiencies are those that are unlikely to be accomplished in the absence of the merger. The

Commission will not challenge a merger only “if cognizable efficiencies are of a character and magnitude

such that the merger is not likely to be anticompetitive in any relevant market.” Merger Guidelines §

4.0. Where, as in this case, the likelihood of competitive harm is high, the cognizable efficiencies must

be “extraordinarily great” in order to “prevent the merger from being anticompetitive.” Id.

The burden of proof in demonstrating that the efficiencies from the acquisition outweigh the

anticompetitive effects resides with respondents. “[G]iven the high concentration levels, the court must

undertake a rigorous analysis of the kinds of efficiencies being urged by the parties in order to ensure

that those ‘efficiencies’ represent more than mere speculation and promises about post-merger

behavior.” Heinz, 246 F.3d at 721. The evidence, however, will show that the claimed efficiencies are

highly speculative, are not likely to benefit consumers, and can be achieved through means with less

dramatic anticompetitive effect than CB&I’s acquisition. As a result, efficiencies are not a defense to

the anticompetitive effects likely to result from this acquisition. See University Health, 938 F.2d at
 

51 Less than two months before trial, CB&I “discovered” an additional in annual

recurring savings from best practices. 

 

52 CB&I’s calculation, for example, that it will save annually from continuing to use 

 is incorrect. Post-acquisition, CB&I adopted its own

methodology , as it cost about per tank than PDM’s

-55-

1223.

Respondents’ varying levels of asserted efficiencies demonstrate how speculative their asserted

efficiencies are. in the Commission’s investigation

of the proposed acquisition, the acquisition would generate cost savings between 

 However, 

 the respondents had 

their estimate of efficiencies Complaint counsel does not know

at this point what level of efficiencies respondents will assert next. 

Based on our examination of respondents’ however, the asserted efficiencies of 

 appear greatly overstated and are not specific to the acquisition. For

example, respondents have asserted that the acquisition has resulted in a 

 However, much of that is due to reductions in personnel that would have taken

place even absent the acquisitions. 

(PDM increased revenue per salaried headcount by streamlining and reengineering business

processes). In their , respondents have asserted savings of over 

by implementing various best practices of CB&I and PDM.51 However, most of that has been inflated

by respondents by asserting cost savings opportunities that the acquisition did not generate.52 
methodology. As CB&I was already building its waterspheroids pre-acquisition using this

methodology, CB&I cannot apply these savings to tanks that it would have built absent the acquisition. 

Yet CB&I applied these savings to CB&I and PDM’s combined market share of percent, even

though controlled a minority stake–only –in that market.

Similar gross miscalculations are reflected in CB&I’s estimated

savings in the manufacture of 

claims in savings from the adoption of PDM’s practice of manufacturing 

based upon CB&I and PDM’s combined market share, yet PDM controlled percent of the market

and CB&I’s share was only percent).

 

53 At times, CB&I’s numbers are simply over-inflated. In its efficiencies for its water products,

CB&I claims that the implementation of PDM’s practices will save CB&I approximately per

tank, . This number is rounded up from the actual calculated figure of 

 a difference of almost per tank.

 

54 Respondents have made no effort, in the context of this proceeding, to update 

 or to verify that CB&I has achieved the efficiency claims that they made in that report. 

-56-

 CB&I has not taken any steps to verify that these estimated savings

have actually been realized. 53 Respondents have claimed

“purchasing” savings of . However, respondents have been unable to verify virtually any of

that asserted savings to be specific to the acquisition.

Even though the acquisition was consummated over 18 months ago, providing ample time to

verify actual cost savings, respondents’ expert economic witness, Dr. Harris, did not make any claim in

his report that the acquisition would either generate efficiencies, or that these efficiencies would be

sufficient to maintain the level of competition that had existed prior to the acquisition.54

If respondents assert an “efficiencies defense” to the acquisition, therefore, Complaint counsel

intends to show that the asserted efficiencies cannot outweigh the likely anticompetitive effects of the

acquisition.
-57-

VI. REMEDY

To remedy the anticompetitive effects of the acquisition in any of the relevant markets alleged in

the Complaint, the Notice of Contemplated Relief provides that the Commission may order such relief

against respondents as is supported by the record and is necessary and appropriate, including, but not

limited to: 

1. An order to cease and desist from any action to effect the acquisition or continued

holding by CB&I of any assets or businesses of PDM;

2. Rescission of the acquisition;

3. Reestablishment by CB&I of two distinct and separate, viable and competing

businesses, one of which shall be divested by CB&I, engaged in the design, engineering, construction

and sale of the lines of commerce alleged in the complaint, including all improvements to existing

products and new products developed by CB&I or PDM, and in such other businesses as necessary to

ensure each of their viability and competitiveness in the lines of commerce alleged in the complaint and

each possessed, including through divestiture, replacement and reconstitution by CB&I, of all assets,

tangible and intangible, including but not limited to all intellectual property, knowhow, trademarks, trade

names, research and development, customer contracts, and personnel, including but not limited to

management, sales, design, engineering, estimation, fabrication and construction personnel, and such

other arrangements as necessary or useful in restoring viable competition in the lines of commerce

alleged in the complaint;

4. Such other or additional relief as is necessary to ensure the creation of one or

more viable, competitive independent entities to compete against CB&I in the manufacture and sale of
-58-

any relevant product; and

5. A requirement that CB&I and PDM provide the Commission with notice in

advance of acquiring the assets or securities of, or any other combination with, any person engaged in

the manufacture or sale of any relevant product. 

It is well-settled that the "Commission has wide discretion in its choice of a remedy" so long as

the remedy has a "reasonable relation to the unlawful practices found to exist." Jacob Siegel Co. v.

FTC, 327 U.S. 608, 611-13, 66 S. Ct. 758, 760 (1946). Furthermore, "once the government has

successfully borne the considerable burden of establishing a violation of law, all doubts as to the remedy

are to be resolved in its favor." United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316,

334, 81 S. Ct. 1243, 1254 (1961) (footnote omitted). As explained by the Commission, "In 7

cases, the principal purpose of relief 'is to restore competition to the state in which it existed prior to,

and would have continued to exist but for, the illegal merger.'" Goodrich, 110 F.T.C. at 345, quoting 

RSR Corp., 88 F.T.C. 800, 893 (1976), aff'd, 602 F.2d 1317 (9th Cir. 1979), cert. denied, 445 U.S.

927, 100 S. Ct. 1313 (1980).

 CB&I's acquisition of PDM's EC and Water divisions eliminated CB&I's principal competitor

in each of the relevant markets, thus substantially reducing or eliminating competition. The aim of any

relief in this case should be to restore this lost competition. As the Supreme Court has stated:

The key to the whole question of an antitrust remedy is of course the discovery of measures

effective to restore competition . . . . [C]ourts are authorized, indeed required, to decree relief

effective to redress violations, whatever the adverse effect of such a decree on private interests.

Du Pont, 366 U.S. at 326, 81 S. Ct. at 1250.

Divestiture would be necessary to restore competition in any of the relevant markets alleged in
-59-

the Commission’s Complaint. Divestiture has long been standard relief to undo the anticompetitive

effects of an unlawful merger. See id. at 327-31; Seeburg Corp. v. FTC, 425 F.2d 124, 129 (6th Cir.

1970), cert. denied, 400 U.S. 866, 91 S. Ct 104 (1970); RSR Corp., 88 F.T.C. 800 (1976);

American Medical Int’l, 104 F.T.C. at 222-223; HCA, 106 F.T.C. at 513.

Effective relief on occasion must go beyond ordering simple divestiture of the acquired assets.

To achieve [the] positive goal of restoration and rehabilitation [of competition], it may not be

sufficient to prohibit merely the particular acts or practices found to be unlawful, or to undo

merely the particular unlawful transactions that have been consummated. It may be necessary

and proper to forbid acts lawful in themselves . . . or to compel affirmative acts of compliance;

and if so, the Commission has the power and the duty to provide such relief . . . [T]he

Commission might order such divestiture of other assets as is required to recreate a viable

concern having approximately the competitive strength of the acquired firm at the time of the

acquisition; in addition, . . . the Commission could require that the acquired firm be recreated in

such form as would reflect the firm's probable growth.

Ekco Products Co., 65 F.T.C. 1163, 1216-17 (1964) (emphasis added); Kaiser Aluminum &

Chem. Corp., 93 F.T.C. 764, 850 (1979), vacated and remanded on other grounds, 652 F.2d

1324 (7th Cir. 1981); Retail Credit Co., 92 F.T.C. 1, 161 (1978), rev'd on other grounds, sub nom.

Equifax, Inc. v. FTC, 618 F.2d 63 (9th Cir. 1980); see Goodrich, 110 F.T.C. at 344-45. 

Remedies may also require the seller to undertake certain acts in order to reestablish a viable

entity, especially when the selling firm knew of a probable challenge to the legality of a merger. See

Goodrich, 110 F.T.C. at 346, n.264; Dean Foods Co., 70 F.T.C. 1146, 1293-94 (1966), modified

as to order, 71 F.T.C. 731 (1967). See also United States v. Coca-Cola Bottling Co. of Los

Angeles, 575 F.2d 222, 227-31 (9th Cir. 1978), cert. denied, 439 U.S. 959, 99 S. Ct 362 (1978)

(sellers may be included in Section 7 remedies.) Commission orders have also utilized rescission as a

remedy where divestiture alone was deemed ineffective. See, e.g., Brunswick Corp., 99 F.T.C. 411
-60-

(1982); Continental Oil Co., 72 F.T.C. 850 (1967); Phillips Petroleum Co., 70 F.T.C. 456 (1966). 

See Coke/Los Angeles, 575 F.2d at 227. 

Relief in this matter must assure that the divested assets are reestablished as operating and

viable competitive entities in these markets. See Goodrich, 110 F.T.C. at 344-45; Kaiser Aluminum,

93 F.T.C. at 856-58 (1979) (final order, requiring respondent to divest plants, and provide technical

assistance, raw materials, and marketing assistance to organization purchasing the divested assets);

Ekco Products, 65 F.T.C. at 1228-29 (respondent Ekco required to divest itself of all assets

necessary to reconstitute the divested entity as a going concern and effective competitor in the relevant

market).

As noted by the Commission in Reichhold Chemicals, 

The Commission may properly order that the acquired firm be recreated in such form as would

reflect the firm's probable growth, including improvements it may have added itself. United

States v. Aluminum Co. of America, 247 F. Supp. 308, 316 (E.D. Mo. 1964), aff'd mem.,

382 U.S. 12 (1965) (order required divestiture of plant built after unlawful acquisition); Union

Carbide Corp., 59 F.T.C. [614 at] 657, 673 [(1961] (divestiture of all post acquisition

improvements and equipment installed on premises of acquired company). . . .

91 F.T.C. 246, 292, 297 (1978). See Goodrich, 110 F.T.C. at 345.

 Following the acquisition, CB&I eliminated physical assets and laid off personnel CB&I

determined were not necessary for the operation of a single competitor. In order to reestablish two

competitors, as they would have existed but for the acquisition, CB&I must purchase or rebuild assets

and hire personnel sufficient to restore two vigorous and viable competitors in the relevant markets. 

X. CONCLUSION

CB&I’s acquisition of PDM’s EC and Water divisions is likely to substantially lessen
-61-

competition or to tend to create a monopoly in violation of Section 7 of the Clayton Act and Section 5

of the FTC Act in the relevant markets. In order to restore the competition that was eliminated by the

acquisition, CB&I must now be required to divest all of the assets it acquired from PDM, and take

other steps necessary to reestablish two distinct and separate, viable and competing businesses in the

relevant markets, including purchasing assets, rehiring personnel, and other taking steps to reconstitute

the PDM EC and Water divisions as they existed prior to February 7, 2001.

Dated: Washington, D.C. Respectfully submitted,

October 21, 2002

Steven L. Wilensky

Cecelia Waldeck

Rhett R. Krulla Robert S. Tovsky

Morris A. Bloom Michael Franchak

Deputy Assistant Directors Hector Ruiz

Eric Sprague

J. Robert Robertson Counsel Supporting the Complaint

Senior Litigation Counsel

Mary C. Forster

Susan Creighton Merger Analyst

Deputy Director

Jacqueline Tapp

Joseph J. Simons Investigative Assistant

Director

Bureau of Competition Yasmine Carson

Honors Paralegal

Federal Trade Commission

600 Pennsylvania Ave. N.W.

Washington D.C. 20580

(202) 326-2650
Statement Regarding Elements of Case - 1-

COMPLAINT COUNSEL’S POSITION ON EACH ELEMENT OF THE CASE

Paragraph 42 of the Complaint in this matter charges Chicago Bridge & Iron Company N.V.

with consummating an illegal acquisition in violation of Section 7 of the Clayton Act, 15. U.S.C. § 18,

and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. "Section 7 does not require

proof that a merger or other acquisition [will] cause higher prices in the affected market. All that is

necessary is that the merger create an appreciable danger of such consequences in the future." 

Hospital Corp. of America v. FTC, 807 F.2d 1381, 1389 (7th Cir. 1986). To prevail in a Section 7

case, the government must establish, by a preponderance of the evidence, (1) a product market, (2) a

geographic market, and (3) a transaction that will lead to undue concentration in the relevant markets. 

By establishing these three elements, the government establishes a presumption of illegality. FTC v.

Swedish Match, 151 F. Supp.2d 151, 156-166 (D.D.C. 2000) . See also Merger Guidelines

§ 1.51. The burden of producing evidence to rebut the presumption then shifts to the defendant. 

Swedish Match, 151 F. Supp. at 167. The defendant may attempt to rebut the government’s case by

presenting evidence on a number of factors, including entry and efficiencies, sufficient to show that the

acquisition is not likely substantially to lessen competition. United States v. Baker Hughes, Inc., 908

F.2d 981, 985-86 (D.C. Cir. 1990). If the defendant successfully 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. See FTC v. H.J. Heinz

Co., 246 F.3d 708, 715 (D.C. Cir. 2001); Baker Hughes, 908 F.2d 981, 982-83 (D.C. Cir. 1990). 

PRODUCT MARKET

The product markets are (i) LNG tanks, (ii) LNG import terminals, (iii) LNG peak

shaving plants, (iv) LPG tanks, (v) LIN/LOX/LAR tanks, and (vi) thermal vacuum chambers.

Legal Basis: The relevant product market includes those products for which “sellers, if

unified by a hypothetical cartel or merger, could raise prices significantly above the competitive level.” 

Coca-Cola Bottling Company of the Southwest, 118 F.T.C. 452, 540 (1994), quoting H.J., Inc. v.

Int’l Tel. & Tel. Corp., 867 F.2d 1531, 1537 (8th Cir. 1989). Thus, “[a] market is the set of sellers to

which a set of buyers can turn for supplies at existing or slightly higher prices.” FTC v. Elders

Grain, 868 F.2d 901, 907 (7th Cir. 1989) (emphasis added). The market "must be drawn narrowly to

exclude any other product to which, within reasonable variations in price, only a limited number of

buyers will turn." Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 612 n.31, 73 S.

Ct. 872, 882 n.31 (1953). The Merger Guidelines define the relevant product market by taking the

smallest possible group of competing products and asking whether a "hypothetical monopolist over that

group of products would profitably impose at least a 'small but significant and nontransitory' [price]

increase." Merger Guidelines §1.11. If customers of the relevant products would not reduce

consumption of the relevant products by an amount sufficient to make the price increase unprofitable,

the market is established. Merger Guidelines § 1.11.
Statement Regarding Elements of Case - 2-

Factual Basis:

1. In his expert report, respondents’ expert witness, Dr. Barry Harris, “accepted the product

markets defined in the complaint.” Harris Report ¶ 16. 

2. There are no economic alternatives for the relevant products. Shop-manufactured LNG

tanks, LPG tanks, LIN/LOX/LAR tanks, and thermal vacuum chambers are not a substitute for fielderected versions of the relevant products. 

 Other products would not be economic substitutes even in the event of a significant

increase in price in the relevant product markets. 

3. Customers in each of the relevant markets project that they will continue to make substantial

purchasers of relevant products over the next several years. Consequently, each market will generate

substantial amounts of commerce.

GEOGRAPHIC MARKET

The geographic market for each of the relevant product markets is the U.S.

Legal Basis: The relevant geographic market is “the smallest region within which a hypothetical

monopolist could ‘profitably impose at least a ‘small but significant and nontransitory’ increase in

price.’” Coca-Cola Bottling, 118 F.T.C. at 575, quoting Merger Guidelines § 1.21. The Merger

Guidelines define the relevant geographic market as:

a region such that a hypothetical monopolist that was the only present or future producer of the

relevant product at locations in that region would profitably impose at least a “small but

significant and nontransitory” increase in price, holding constant the terms of sale for all

products produced elsewhere. 

Merger Guidelines § 1.21. 

Factual basis:

1. The relevant products must be constructed on-site. 

 Therefore, the competition occurs among suppliers in the United States.
 

55 The HHI is calculated by summing the squares of the market shares of all firms in the market. 

Merger Guidelines § 1.5.

Statement Regarding Elements of Case - 3-

THE PRESUMPTION OF ANTICOMPETITIVE EFFECTS

CB&I’s acquisition of PDM EC caused an undue increase in concentration in the

relevant markets, establishing a presumption of illegality.

Legal Basis: Because of the competitive risks they create, mergers that significantly increase market

concentration are presumptively unlawful. See Hospital Corp. of Am., 807 F.2d at 1389; Merger

Guidelines § 1.51. Market concentration may be measured by determining the market shares of

industry leaders or by calculating the Herfindahl-Hirschman Index ("HHI"). FTC v. PPG Indus., Inc.,

798 F.2d 1500, 1503 (D.C. Cir. 1986); FTC v. University Health, Inc. 938 F.2d 1206, 1211 n.12

(11th Cir. 1991) (HHI is the “most prominent method” of measuring market concentration); FTC v.

Staples, 970 F. Supp. 1066, 1081-82 (D.D.C. 1997); Cardinal Health, 12 F. Supp.2d 34, 53-54

(D.D.C. 1997); Merger Guidelines § 1.5.55 A merger that results in an HHI over 1800 indicates a

highly concentrated market; it is presumed that mergers producing an increase in the HHI of more than

100 points in such markets are likely to create or enhance market power or facilitate its exercise.

Merger Guidelines § 1.51. It is appropriate to examine market shares over an extended period of

time “where individual sales are large and infrequent so that annual data may be unrepresentative.” Id.

at § 1.41 See U.S. v. Baker Hughes, 731 F. Supp. 3, 17 (D.D.C. 1990), aff’d 908 F. 2d. 981 (D.C.

Cir. 1990).

Factual Basis:

1. Complaint counsel has measured market shares by examining the values of contracts firms

have secured for a period of over a decade. CX 1153 at ¶ ¶ 60-65.

2. The acquisition increases the HHI in the U.S. market for LNG tanks by from 

to 10000. Id. at ¶ 60.

3. The acquisition increases the HHI in the U.S. market for LPG tanks by from 

to 8380. Id. at ¶ 61.

4. The acquisition increases the HHI in the U.S. market for LIN/LOX/LAR tanks by 

 from to 5845. Id. at ¶ 65.

5. The acquisition increases the HHI in the U.S. market for thermal vacuum chambers by 

 from to 10000. Id. at ¶ 62.
Statement Regarding Elements of Case - 4-
Statement Regarding Elements of Case - 5-

The acquisition eliminated competition between the two closest competitors in each of

the relevant markets.

Legal Basis: The Commission presumes that if the combined market shares of the merging firms

reaches 35%, then “a significant share of sales in the market are accounted for by consumers who

regard the products of the merging firms as their first and second choices.” Merger Guidelines

§ 2.211. Furthermore, the success of CB&I and PDM in winning contracts provides “information that

directly reflects customers’ actual preferences” for sourcing from either of those two rivals. R.R.

Donnelley & Sons Co., 120 F.T.C. 36, 196 (1995). Respondents’ internal documents also provide

probative evidence that CB&I and PDM recognized each other to be their closest competitor. 

Factual Basis:

1. CB&I and PDM accounted for the vast majority of sales in each of the relevant products,

for a period of over a decade.

2. CB&I and PDM recognized each other to be their closest competitor in the U.S. markets

for the relevant products. 

3. Bids submitted by other firms for U.S. projects in the past have not been competitive with

bids from CB&I and PDM. 

4. The acquisition eliminated intense, head-to-head competition between CB&I and PDM in

the relevant products. 

The evidence establishes a strong presumption of anticompetitive effects.

Legal Basis: Two factors contribute to establish a strong presumption of anticompetitive effects in

this case. First, high market shares traditionally establish a strong presumption that the acquisition

would lessen competition and therefore is illegal under Section 7. Coca-Cola Bottling, 118 F.T.C.

452, 586 (1994) (high HHIs “create a strong presumption of possible anticompetitive effects);

Goodrich, 110 F.T.C. 207, 314 (1988) (post-acquisition HHI’s which were less than 1800 are “well

above those that created a presumption of illegality” and “create a relatively strong presumption of

anticompetitive effects.”). Second, in markets where the products offered by firms are differentiated,

mergers between firms that are particularly close competitors are much more likely to reduce

competition. Merger Guidelines § 2.21. “The closeness of the merging firms’ products has a critical

effect on the profitability of a post-merger price increase because the more closely substitutable are two
Statement Regarding Elements of Case - 6-

products (relative to their substitutability with other products), the greater is the degree to which

substitution away from each of the products will be ‘internalized’ by the merged firm.” Donnelley, 120

F.T.C. at 196. Thus, CB&I’s “market power relative to other market participants increases as its

share becomes disproportionately larger than the shares of other market participants.” Coca-Cola

Bottling, 118 F.T.C. at 587. 

ANTICOMPETITIVE EFFECTS OF THE ACQUISITION

Respondents are required to present substantial evidence in order to rebut the strong

presumption of anticompetitive effects in each of the relevant markets. 

Legal Basis: Once Complaint counsel establishes a prima facie case through market share evidence,

the burden shifts to respondents to provide evidence to rebut the presumption of anticompetitive effects. 

B.F. Goodrich, 110 F.T.C. at 308. “To meet their burden, the [respondents] must show that the

market-share statistics . . . ‘give an inaccurate prediction of the proposed acquisition’s probable effect

on competition.’” Cardinal Health, 12 F. Supp.2d at 54 (quoting Staples, 970 F. Supp. at 1083). 

The stronger the market share evidence, the stronger the evidence must be in order to rebut the

presumption. Coca-Cola Bottling, 118 F.T.C. at 586 (high HHI’s “create a strong presumption of

possible anticompetitive effects; thus, relatively strong evidence from other factors will be necessary to

rebut that presumption.”); Baker Hughes, 908 F.2d. at 991 (“The more compelling the prima facie

case, the more evidence the defendant must present to rebut it successfully.”). 

Factual Basis:

1. Complaint counsel has established a strong prima facie case in each of the relevant markets:

LNG; LPG; LIN/LOX/LAR and thermal vacuum chambers.

The acquisition has had direct anticompetitive effects.

Legal Basis: By eliminating PDM as a competitive alternative to CB&I, the acquisition has put

customers “in the position of having to switch to less desirable alternatives.” Coca-Cola Bottling, 118

F.T.C. at 609. See Merger Guidelines § 2.21 n. 21 (“A merger involving the first and second lowestcost sellers could cause prices to rise to the constraining level of the next lowest-cost seller.”). 

Factual Basis:

1. Prior to the acquisition, CB&I regularly included margins in its budget estimates for

LNG projects. Post-acquisition, however, CB&I is including 

margins in some of its budget estimates for LNG projects. 

 See CX 1559 ¶ ¶ 53, 47 (Simpson Rebuttal) (citing CB&I’s increased margin for 

 and high priced quote 
Statement Regarding Elements of Case - 7-

2. Some customers in the relevant markets have cited post-acquisition pricing increases by

CB&I. CX 1153 ¶ ¶ 120, 140 (Simpson) (citing testimony by

 ).

Fringe competitors will not maintain or restore the competition that existed between

CB&I and PDM.

Legal Basis: Anticompetitive effects are unlikely only if “rival sellers likely would replace any

localized competition lost through the merger by repositioning their product lines.” Merger Guidelines

§ 2.212. Therefore, in order to demonstrate that the presence of fringe competitors would be sufficient

to restore the lost competition, respondents must demonstrate that the fringe competitors will develop

the same capabilities to supply customers in the U.S. that PDM and CB&I had at the time of the

acquisition. Donnelley, 120 F.T.C. at 195 (“In the context of localized competition, unilateral

competitive effects may result from . . . a merger between rival sellers that have similar advantages in

serving a particular group of buyers.”). 

Factual Basis:

1. Fringe competitors lack the experience and reputation for reliability that CB&I and PDM

relied upon as a significant competitive advantage. Customers in each of the relevant markets prefer to

source from suppliers who have a track record of completing multiple projects that have operated

successfully over many years, in order to limit the risk of financial (and potentially human) losses

associated with product failure. Thus, the main

customers - in each market alleged in the Complaint - place a great deal of emphasis on dealing with

established suppliers, and would be reluctant to give business to a new supplier, even in the face of a

significant cost differential. 

2. CB&I and PDM had a cost advantage over competitors which need to rely extensively on

more expensive subcontracting for construction services, 

and for the fabrication of steel components. 

3. CBI’s and PDM’s successful completion of so many projects have provided them with the

benefits of the learning curve inherent in their continuing experience in building tanks, which provides

them with an additional source of cost advantages over other firms in each of the relevant markets. In

contrast to CB&I and PDM, fringe competitors have completed far fewer projects in the U.S., and

simply have not had the opportunity to gain the experience that CB&I and PDM have had. 
Statement Regarding Elements of Case - 8-

4. Fringe competitors will not replace PDM as a competitor to CB&I in any of the relevant

markets. 

New entry will not replace the lost competition. 

Legal Basis: In assessing the conditions of entry, the ultimate issue is whether entry is so easy that it

"would likely avert anticompetitive effects from [the] acquisition . . . ." Baker Hughes, 908 F.2d at 989. 

Under the Merger Guidelines, entry is considered "easy" if it would be "timely, likely and sufficient in

its magnitude, character and scope to deter or counteract the [anti]competitive effects" of a proposed

transaction. Merger Guidelines § 3.0, quoted with approval, Rebel Oil Co., Inc. v. Atlantic

Richfield Co., 51 F.3d 1421, 1440 (9th Cir.), cert. denied, 116 S. Ct. 515 (1995). Reputation can

be a barrier to entry, particularly in markets where the need for reliability is great and the consequences

of new product failure is significant. United States v. United Tote, Inc., 768 F. Supp. 1069, 1076-78

(D. Del. 1991).

Factual Basis:

1. A prospective entrant would require a substantial base of revenue in the sale of general

industrial tanks and water tanks to finance marketing and bidding efforts in the relevant markets and to

be able to retain experienced personnel. Personnel, equipment, and facilities necessary for construction

of the relevant products are are supported by their use in the construction of industrial and water

storage tanks. 

 Therefore, the prospective entrant would need

to be able to enter successfully into these other tanks markets in order to obtain the necessary

economies of scale and scope required to be a cost-effective competitor. 

 However, large-scale new entry

into all of those markets is highly unlikely, because industrial tanks and water tank markets in general

are growing slowly and generate low margins. 

2. The most likely new entrants are firms that already produce industrial tanks, but do not

produce low-temperature cryogenic tanks. However, those firms, with absolutely no experience

attempting to compete in the relevant markets, are unlikely to be effective competitors. Customers

would be reluctant to deal with a new entrant that lacks a track record in manufacturing reliable

products. 

3. It would take a period of several years before a new entrant into the relevant markets would

gain the experience and reputation that it would need to be an effective competitor in the relevant

markets. Simply to bid on and construct a single tank, such as an LNG tank, would take two years or

more. Developing the in-house design, engineering and

construction capabilities to bid would itself require close to two years. A company would have to build
Statement Regarding Elements of Case - 9-

many tanks, over a period of years, to reach the level of experience of CB&I and PDM. 

RESPONDENTS’ DEFENSES

Respondents’ failing division argument fails factual and legal scrutiny.

Legal Basis: In order to establish a failing firm or failing division defense, respondents must establish

that the firm (or division) was on the brink of financial failure and that there were no alternative

purchasers available that would have been less anticompetitive. Merger Guidelines §§ 5.1-5.2. 

Factual Basis:

1. PDM’s EC Division was not a failing division. Up until the time of the acquisition, it had

been consistently profitable. The division had only in the year the acquisition agreement was

signed, due to a downturn in the markets CB&I and PDM served,

 profitability in the near future.

2. Even if the division met the criteria of a failing division, PDM never made any effort to

find a purchaser other than CB&I. Other companies would likely have had interest. Immediately prior

to the CB&I acquisition, the called 

 PDM, and informed him of his interest in purchasing PDM. 

 told that PDM already had a buyer and would if that

deal fell through. 

3. CB&I was the first company that PDM contacted. Because CB&I was willing to pay

a high price for PDM, it became a preemptive buyer. 

Because PDM quickly reached a deal with CB&I,

 made no attempt to contact other potential purchasers. 

4. CB&I was willing to pay a high price for PDM,

alternative buyers would unlikely pay a premium price for the EC division because they would face

continued tough competition from CB&I. 

The efficiencies that CB&I has claimed can be attributed to the acquisition remain highly

speculative, and are not specific to the acquisition. 

Legal Basis: The Commission will consider only merger-specific efficiencies, assessed net of costs,

that are verifiable and do not arise from anticompetitive reductions in output or service. Mergerspecific efficiencies are those that are unlikely to be accomplished in the absence of the merger. The

Commission will not challenge a merger if cognizable efficiencies are of a character and magnitude such
Statement Regarding Elements of Case - 10-

that the merger is not likely to be anticompetitive in any relevant market. Merger Guidelines § 4.0. 

The burden of proof relating to efficiencies clearly resides with respondents and the court must subject

them to close scrutiny: “[G]iven the high concentration levels, the court must undertake a rigorous

analysis of the kinds of efficiencies being urged by the parties in order to ensure that those ‘efficiencies’

represent more than mere speculation and promises about post-merger behavior.” Heinz., 246 F.3d at

721 (D.C. Cir. 2001). 

Factual basis:

Respondents’ calculation of efficiencies is not credible.

1. Documents 

 projected total savings of 

million for 2002. A estimate projected “synergies” from CB&I’s acquisition of

PDM of about million annually. 

2. On the eve of the Commission’s vote to issue the Complaint, CB&I its estimated

efficiencies from the acquisition to million. 

3. Those claimed efficiencies, however, are vastly overstated. For example, respondents

asserted that the acquisition has resulted in a reduction in personnel costs million. However,

much of that is due to reductions in personnel that would have taken place even absent the acquisition. 

Respondents have asserted, savings of over 

million by implementing various “best practices” of CB&I and PDM. However, most of that has been

inflated by respondents by asserting cost savings opportunities that the acquisition did not generate. 

 CB&I has not taken any steps to verify that these estimated savings

have actually been realized. 

4. CB&I did not include the costs of attaining efficiencies in its million estimate. 

5. Respondents’ expert, Dr. Harris, did not assert in his report that the acquisition, which was

consummated over 18 months ago, has generated efficiencies. 
UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

__________________________________________

)

In the Matter of )

)

CHICAGO BRIDGE & IRON COMPANY N.V. )

)

a foreign corporation, )

) CONFIDENTIAL: SUBJECT

CHICAGO BRIDGE & IRON COMPANY ) TO PROTECTIVE ORDER

)

a corporation, )

 ) Docket No. 9300

and )

)

PITT-DES MOINES, INC. )

)

a corporation. )

__________________________________________)

The following persons should be notified of the Federal Trade Commission’s intent to disclose,

in a final decision, the confidential material contained in Complaint Counsel’s Pretrial Brief:
2

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3

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CERTIFICATE OF SERVICE

I hereby certify that I caused a copy of the public version of Complaint counsel’s Pretrial Brief

to be delivered by hand to

The Honorable D. Michael Chappell

Federal Trade Commission

H-104

6

th and Pennsylvania Ave. N.W.

Washington D.C. 20580

Administrative Law Judge

and by facsimile and by first-class mail to:

Jeffrey A. Leon

Winston & Strawn

35 West Wacker Drive

Chicago, IL 60601-9703

(312) 558-5600

Counsel for Respondents Chicago Bridge & Iron Company

N.V. and Pitt-Des Moines, Inc.

________________________

April Tabor

Dated: October 31, 2002