UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

__________________________________________

)

In the Matter of )

)

CHICAGO BRIDGE & IRON COMPANY N.V. )

)

a foreign corporation, )

) Docket No. 9300

CHICAGO BRIDGE & IRON COMPANY )

) PUBLIC RECORD VERSION

a corporation, and )

)

PITT-DES MOINES, INC. )

)

a corporation. )

__________________________________________)

To: The Honorable D. Michael Chappell

Administrative Law Judge

COMPLAINT COUNSEL’S CORRECTED BRIEF 

IN SUPPORT OF ITS PROPOSED FINDINGS OF FACT

AND CONCLUSIONS OF LAW

Rhett R. Krulla Michael A. Franchak

Morris A. Bloom Chul Pak

Deputy Assistant Directors Hector Ruiz

Eric M. Sprague

J. Robert Robertson April Tabor

Senior Litigation Counsel Robert S. Tovsky

Cecelia M. Waldeck

Susan Creighton Steven L. Wilensky

Deputy Director Counsel Supporting

 the Complaint

Joseph J. Simons

Director Jacqueline Tapp

Investigative Assistant

Bureau of Competition

Federal Trade Commission Yasmine Carson
Honors Paralegal

February 25, 2003
i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ..................................................... iii

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

A. Extraordinary Post-Merger Concentrations Create A Strong

Presumption That The Acquisition May Lessen Competition ............. 2

B. Respondents Failed To Show Entry Was Easy: Timely, 

Likely To Achieve Pre-Merger Prices Profitably, 

And Sufficient To Replace PDM ................................. 2

C. When There Is Actual Proof Of Anticompetitive Effects – e.g., 

Actual Or Attempted Collusion, Higher Prices or Margins, 

As There Is Here – The Merger Should Be Independently Condemned ..... 5

D. Respondents’ “Exiting Asset” Defense 

Has Been Rejected By The FTC ................................. 8

I. THE STRUCTURAL EVIDENCE OF EXTRAORDINARILY 

HIGH CONCENTRATION IN THE RELEVANT MARKETS 

DEMONSTRATES THAT THE ACQUISITION MAY LESSEN 

COMPETITION SUBSTANTIALLY. ........................................ 9

A. The Acquisition Greatly Increased Concentration in 

Highly Concentrated Markets To Extraordinary Levels. ............... 12

B. There Is No Legal Basis Supporting Respondents’ Claim 

That This Tribunal Should Shorten The Relevant Time 

Period or Reject Pre-Acquisition Evidence ......................... 14

II. RESPONDENTS FAILED TO REBUT THE PRESUMPTION OF ANTICOMPETITIVE

EFFECTS IN ANY OF THE RELEVANT MARKETS .......................... 18

A. The Alleged Entry Is Not “Timely” (Within Two Years). ............... 19

B. Entry Cannot Be “Profitable at Pre-Merger Prices.” .................. 20

C. Entry Cannot Be Sufficient To Replace PDM. ..................... 21
ii

D. Barriers to Entry Prevent Potential Competitors 

From Replacing PDM As A Major Supplier 

To Force Prices Back Down To Pre-Merger Levels. ................. 22

III. POST-ACQUISITION EVIDENCE DEMONSTRATES THAT 

ANTICOMPETITIVE EFFECTS ARE LIKELY, 

BECAUSE THEY HAVE ALREADY OCCURRED ............................ 26

A. By Eliminating its Only Significant Competitor, 

the Acquisition Increases CB&I’s Market Power .................... 28

B. Actual Evidence Of Anticompetitive Conduct 

Independently Requires A Finding Of Liability 

Against Respondents In This Case ............................... 31

IV. RESPONDENT’S “EXITING ASSETS” 

DEFENSE FAILS AS A MATTER OF LAW .................................. 39

V. DIVESTITURE IS REQUIRED TO RESTORE THE COMPETITION 

ELIMINATED BY CB&I’S ACQUISITION OF PDM .......................... 44

A. Under Controlling Law, Divestiture Is Required 

If a Section 7 Violation Is Found ................................ 47

B. In Order to Restore Competition, Divestiture Must Be Complete ........ 48

C. There Is Substantial Evidence in the Record to Guide 

the Tribunal in Ordering Divestiture to Remedy 

the Effects of the Acquisition if a Violation Is Found .................. 51

D. The Provisions of Complaint Counsel’s Proposed 

Order Are Tailored to Restore the Competition 

that Existed Prior to the Acquisition .............................. 56

VI. CONCLUSION ........................................................ 58
iii

TABLE OF AUTHORITIES

CASES:

Arnold Pontiac-GMC, Inc. v. Budd Baer, Inc.,

826 F.2d 1335 (3d Cir. 1987) .............................................. 28

Ash Grove Cement Co. v. FTC, 577 F.2d 1368 (9th Cir. 1978) .......................... 48

B.F. Goodrich Co., 110 F.T.C. 207 (1988) ................................ 16, 18, 26, 48

Badaracco v. Commissioner, 464 U.S. 386 (1984) ................................... 45

Borden, Inc. v. FTC, 674 F. 2d 498, 511 (6th Cir. 1982) ............................... 15

California v. American Stores Co., 495 U.S. 271 (1990) ............................ 9, 45

Citizen Publishing Co. v. United States, 

394 U.S. 131, 89 S. Ct 927 (1969) .......................................... 41

Coca-Cola Bottling Co. of the Southwest,

118 F.T.C. 452 (1995) ............................................. 11, 18, 25

Coca-Cola Company, 117 F.T.C 795 (1994) ..................................... 14, 17

Crandon v. U. S., 494 U.S. 152 (1990) ............................................ 45

Crouse-Hinds Co. v. Internorth, Inc., 

518 F. Supp. 416 (N.D.N.Y. 1980) ......................................... 27

Crown Zellerbach Corp., 54 F.T.C. 769 (1957) ................................... 46, 48

Diamond Alkali Co., 72 F.T.C. 700 (1967) ......................................... 50

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

aff'd 347 F.2d 745 (7th Cir. 1965) ....................................... 46, 51

Escondido Mut. Water Co. v. La Jolla Indians, 

466 U.S. 765 (1984) ..................................................... 45

Echlin Mfg Co., 105 F.T.C. 410 (1985) ........................................... 23
iv

Ford Motor Co. v. U. S., 405 U.S. 562 (1972) ............................. 46, 47, 49, 50

Fruehauf Trailer Co., 67 F.T.C. 878 (1965) ........................................ 46

FTC v. Cardinal Health, Inc.,

12 F. Supp. 2d 34 (D.D.C. 1998) .................................. 12, 17, 21, 28

FTC v. Coca-Cola Co.,

641 F. Supp. 1128 (D.D.C. 1986);

vacated as moot, 829 F.2d 191 (D.C. Cir. 1987) ................................ 30

FTC v. Consolidated Foods Corp., 

380 U.S. 592 (1965) ..................................................... 16

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

FTC v. Harbour Group Investments, L.P.,

No. 90-2525, 1990 WL 198819 (D.D.C. Nov. 19, 1990) ......................... 42

FTC. v. Libbey Foods, Inc., 

211 F. Supp. 2d 34 (D.D.C. 2002) .......................................... 17

FTC v. PepsiCo., Inc., 477 F. 2d 24 (2d Cir. 1973). ................................... 1

FTC v. PPG Indus., Inc., 

798 F.2d 1500 (D.C. Cir. 1986) ............................................ 10

FTC v. Procter & Gamble Co., 

386 U.S. 568 (1967) ..................................................... 15

FTC v. Staples, Inc.,

970 F. Supp. 2d 1066 (D.D.C. 1997) .................................. 22, 29, 30

FTC v. Swedish Match,

131 F. Supp. 2d 151 (D.D.C. 2000) ................................ 17, 22, 29, 30

FTC v. University Health, Inc.,

938 F.2d 1206 (11th Cir. 1991) ............................................. 10

FTC v. Warner Communications Inc., 

742 F.2d 1156 (9th Cir. 1984) ........................................... 28, 40
v

Greyhound Computer Corp. v. IBM Corp., 

559 F. 2d 488 (9th Cir. 1977) .............................................. 15

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

aff’d 807 F.2d 1381 (7th Cir. 1986) ..................................... 17, 48

Hospital Corp. of America v. FTC, 807 F.2d 1381 (7th Cir. 1986) ............... 9, 16, 26, 50

Olin Corp. v. FTC, 986 F.2d 1295 (9th Cir. 1993) .............. 2, 8, 28, 39, 40, 41, 42, 43, 51

Olin Corporation, 113 F.T.C. 400 (1990) ........................ 40, 44, 46, 48, 50, 51, 52

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

114 F. Supp. 2d 243 (S.D.N.Y. 2000) ....................................... 26

R.R. Donnelly & Sons Co., et. al., 

120 F.T.C. 36 (1995) .................................................... 29

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) ............................. 48

Seeburg Corp. v. FTC, 425 F.2d 124 (6th Cir. 1970) .................................. 48

States v. Computer Assoc., Inc., 

Civ. No. 01-02062 (GK) (D.D.C. 2002) ...................................... 32

Tasty Baking Co. v. Ralston Purina, Inc., 

653 F. Supp. 1250 (E.D.Pa. 1987) .......................................... 27

Todd v. Exxon, 275 F.3d 191 (2d Cir. 2001) ........................................ 28

United States v. Baker Hughes, Inc., 

908 F.2d 981 (D.C. Cir. 1990) .................................... 12, 15,18, 28

United States v. Blue Bell, Inc., 

395 F. Supp. 538 (M.D. Tenn. 1975) ........................................ 43

United States v. Eastman Kodak Co., 

63 F. 3d 95 (2d cir. 1995) ................................................. 26
vi

United States v. Franklin Electric Co., Inc., 

130 F.Supp. (W.D. Wisc. 2000) ............................................ 22

United States v. Greater Buffalo Press, Inc., 

402 U.S. 549 (1971) ............................................... 43, 46, 47

United States v. Hammermill Paper Co., 

429 F. Supp. 1271 (W.D. Pa. 1977) ......................................... 29

United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001) ........................ 26, 45, 46

United States v. United Tote, Inc., 768 F. Supp. (D. Del. 1991) ................... 22, 48, 50

STATUTES:

Clayton Act, 

Section 7, 15 U.S.C. § 18 ............................................. passim

Section 11(b), 15 U.S.C. § 45(b) ........................................ passim

Federal Trade Commission Act,

Section 5, 15 U.S.C. § 18 ............................................... passim

OTHER AUTHORITIES

4 P. Areeda, H. Hovenkamp & J. Solow, Antitrust Law (rev. ed. 2000)

¶ 911a ................................................................ 30

¶ 911b ............................................................. 18, 22

¶ 927 ................................................................. 10

¶ 944b ................................................................ 27

¶ 954, et seq ........................................................ 41, 42

Adams, John, Argument in Defense of the British Soldiers in the Boston 

Massacre Trials (December 1770) reprinted in the 

TRIAL OF THE BRITISH SOLDIERS 101 (Mnemosyne 1969) ....................... 9, 45

Baker, Jonathan, Unilateral Competitive Effects Theories 

in Merger Analysis, 11 ANTITRUST 21 (Spring 1997) ............................ 30
vii

Elzinga, The Antimerger Law: Pyrrhic Victories, 

12 J. Law & Economics 43, 55 (1969) ......................................... 49

Federal Trade Commission, A Study of the Commission's Divestiture Process, 

prepared by the staff of the Bureau of Competition (1999) ......................... 49

Kwoka & Warren-Boulton, Efficiencies, Failing Firms 

and Alternatives to Merger: a Policy Synthesis, 

31 ANTITRUST BULL. 431 (1986) .................................. 39, 40, 41, 42

Muris, Timothy, Antitrust Enforcement at the Federal Trade 

Commission: In a Word – Continuity, 

Remarks at the American Bar Association, 

Antitrust Section Annual Meeting, at 7 (Aug. 7, 2001) ............................ 49

Rogowsky, Robert, The Economic Effectiveness of Section 7 Relief, 

31 Antitrust Bull. 187 (1986) ............................................... 49

Triggs, Casey, FTC Divestiture Policy, 17 ANTITRUST 75, 76 (Fall 2002) .................. 56

Tschantz, Crooke, and Froeb, Mergers in Sealed versus Oral Auctions, 

7 INTERNATIONAL JOURNAL OF THE ECONOMICS OF BUSINESS 202 (2000) ............. 30

U.S. Department of Justice & Federal Trade Commission, 

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

Von Kalinowski, J., Antitrust Law & Trade Regulation (2d ed. 1996) ............. 5, 17, 26, 39
 

1

 John Adams, Argument in Defense of the British Soldiers in the Boston Massacre Trials (December

1770) reprinted in the TRIAL OF THE BRITISH SOLDIERS 101 (Mnemosyne 1969).

 

2

 An acquisition that violates Section 7 of the Clayton Act also violates Section 5 of the FTC Act. FTC

v. PepsiCo., Inc., 477 F. 2d 24, 28 n.6 (2d Cir. 1973).

1

INTRODUCTION

It was at trialthatRespondents’ case came unglued. Faced with overwhelming evidence ofhighly

concentrated markets and their own anticompetitive conduct, CB&I and PDM abandoned their

“efficiencies” defense, which dominated the discovery in the case, and instead relied upon Dr. Harris’

unsupported opinionthatCB&I wouldn’tpossiblydoanythinganticompetitive and Mr. Glenn’s assurances

that they would be good and not do anything bad like raise prices. 

But, as John Adams once said, “facts are stubborn things”, thus, whatever Dr. Harris and Mr.

Glenn may wish or postulate, “theycannot alterthe state of facts and evidence.”1 In this case, Complaint

Counseloffered undisputedfactstoestablishthatthis acquisitionmaylessencompetitioninthe field-erected

cryogenic tank and large thermalvacuumchamber markets at issue. In the end, evidence of extraordinarily

high concentration, barriers to entry, and undisputed evidence of actual or attempted collusion and

dramatically higher prices and margins, place this case at the extreme edge of the most egregious cases in

the history of Clayton Act § 7. 

Complaint Counsel has offered substantial evidence that the acquisition violates Clayton Act,

Section 7

2 because it “may...lessen competition” in any or all of these lines of commerce in the United

States: field-erected LNG tanks, LNG import terminals, LNG peak shaving plants, LPG tanks,

LIN/LOX/LAR tanks, and large (over 20' in diameter) thermal vacuum chambers (“TVC’s”). FTC v.

H.J. Heinz Co., 246 F.3d 708, 713 (D.C. Cir. 2001) (“Congress has empowered the FTC...to weed out
2

those mergers whose effect ‘may be substantially to lessen competition’”).

! Extraordinary Post-Merger Concentrations Create A Strong Presumption That

The Acquisition May Lessen Competition.

Complaint Counsel’s prima facie case is based on statistical evidence of concentration, which

because it is unrebutted satisfies the required proof in this case as a matter of law. In this case, the

concentration figures, called HHIs, of between 5,900 and 10,000, which the U.S. Department of Justice

& FederalTrade Commission, Horizontal Merger Guidelines(1992, rev. 1997) calla “puremonopoly,”

are far above what Judge Henderson, in the recent baby foods case, said proved “by a wide margin” the

likelihood of anticompetitive effects. FTC v, H.J. Heinz Co., 246 F.3d 708, 716 (D.C. Cir. 2001)

(HHI’s over 4,775); Merger Guidelines § 1.5 n.17.

! Respondents Failed To Show Entry Was Easy: Timely, Likely To Achieve PreMerger Prices Profitably, And Sufficient To Replace PDM.

Under the law, once Complaint Counsel offered evidence of high concentration, it is then

Respondents’ “burdento rebut a prima facie case ofillegality.” Olin Corp. v. FTC, 986 F.2d 1295, 1305

(9th Cir. 1993). They chose to attempt an “easy entry” story. The problem with this story, however, is that

theyfailed to addressthe defenses’three elements: “entry”must be (i) “timely” (within two years);(ii) likely

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

anticompetitive effects of the acquisition. Merger Guidelines §§ 3.1-3.4. Yet, all that Respondents tried

to prove was that Messrs. Glenn and Scorsone may think thatforeign firms might enter the LNG market.

This Tribunal will recall that, after numerous objections by Complaint Counsel, Respondents

conceded that the press releases and other so-called entry evidence would be admitted solely for proof

of the state of mind of CB&I. Such evidence has little value and does not meet all the elements of their
3

defense. 

Signally, Respondents offer no evidence of attempted entry in any market otherthanLNG. Their

so-called evidence – press releases about joint ventures, which were never admitted to prove the truth of

entry – tell us nothing. There are simply no new entrants in the market for LPG tanks, LIN/LOX/LAR

tanks, or large thermal vacuum chambers (“TVC”). If Respondents fail to address even one of these

markets in rebuttal, they lose this case – and they have failed to address all but the LNG market. 

The TVC story is remarkable. In their opening statement, Respondents promised to show that

Howard Fabricationwas a competitor ofCB&I inlarge,field erected TVCs. Then, once Mr. Gill testified

that CB&I had asked him to “coordinate on making a bid or price quote to TRW” – clear evidence of

collusion– CB&I ranfromtheirstoryasfast astheycould byattempting to prove that Howard wasn’t even

a competitor at all. 

The result isthat the parties now agree that there is no other competitorinthe TVC market. Thus,

Respondents’ case stops dead inthe water. Facing this prospect, it was no surprise that their only defense

in TVCs was an offer of settlement. But even there, Mr. Glenn didn’t get it. Along with a mentoring

program, his offer was “not to participate in the market at all” except for certain projects that he would

agree to do at “any profit that the Court would like to establish.” (Glenn, Tr. 4165) Complaint Counsel

respectfully asks this Tribunal to tell CB&I that the way Congress has mandated profit levels to be set is

through competition – that was eliminated by the acquisition – not through CB&I’s attempt to agree to

price levels. They tried that before, and Complaint Counsel asserts that this behavior in the marketplace

is unlawful and must be stopped.

But even in the LNG market, Respondents failed to prove all the elements of an entry defense:

There is no evidence that entry will be either “timely” or “profitable at pre-merger prices.” Indeed, the
4

evidence is to the contrary. It has been two years since the acquisition, and none of these foreign

competitors has entered. Moreover, the evidence is undisputed that CB&I and PDM were the low-cost

and preferred suppliersinthisindustry. For example, foreign companies, with previous joint ventures, tried

unsuccessfully to compete in 1995 in Memphis and could not come within 20% of CB&I and PDM’s

prices. When a new LNG tank needed to be contracted for in Memphis, just last year, the customer

ignored the foreign companies and said thatCB&I wasthe only one qualified to do the work. [ ] reached

the same conclusion. The high level of prices for other competitors is also apparent in the LIN/LOX/LAR

market as well. 

The principal reason why no foreign competitor canbeat CB&I is that there are barriers to entry,

includingthe fact thatCB&I isthe low-costsupplier. Respondents’ internal documents thoroughly establish

that CB&I and PDM were the lowcost competitors and that their relationship before the Letter Of Intent

was signed in August 2000 was, in Respondents counsel’s words, “fractious competition.” After the

acquisition, with competition eliminated, CB&Iisstillthe lowest cost provider. No one else comes close.

As Mr. Glenn told hisinvestors,CB&I’s costs are lower than those of its competitors:“we canstillbe low

bidder and make more moneyonit thanmost ofour competitors, ifnot allofthem.” (Glenn, Tr. 4381; CX

1731 at 42) As Mr. Glenn admitted, the fact is that CB&I can “win the work” whenever they want to,

unless someone bids under their cost. (Glenn, Tr. 4380; CX 1731 at 44) 

What happens when the two lowest cost providers merge? As the Merger Guidelines explains:

“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. As Judge Henderson explained

inthe Heinz case, whentwo competitors competed forthe lowerpriceposition, it issimply “anindisputable

fact that the merger will eliminate competitionbetween” them, and it would seemobvious that prices would
5

rise. Heinz, 246 F.3d at 717. There the higher priced company, Gerber, who was not a participant inthe

merger betweenHeinz and Beech-Nut, actually had a 65%marketshare, and yet the circuit courtreversed

the district court and stopped the merger betweenthe othertwo, findingthat “[a]sfar as we can determine,

no court has ever approved a mergerto duopoly undersimilar circumstances.” Id. Obviously, inthis case,

where the merger gives CB&I 100% of the market in LNG, LPG and TVCs and over [ ] of the

market for LIN/LOX/LAR (provided that ATV hangs inthere), if this Tribunal were to give Respondents

a pass, it would be entirely unprecedented and would undermine the entire purpose of Section 7 of the

Clayton Act.

! WhenThere Is ActualProofofAnticompetitive Effects – e.g., Actual orAttempted

Collusion, Higher Prices or Margins, as There Is Here – The Merger Should Be

Independently Condemned.

Whenthere is proof of any post-acquisition anticompetitive conduct, suchas attempted collusion

or higher prices, all bets are off. As a leading antitrust commentator said, such evidence “cements”

Complaint Counsel’s case. J. Von Kalinowski, Antitrust Law & Trade Regulation, § 4.03[4] (2d 1996)

(hereinafter “VonKalinowski”) (Citations omitted). And there is more evidence of anticompetitive effects

here than Complaint Counsel can find in any prior FTC case where divestiture has been ordered.

Anticompetitive effects have actually turned up here in spades. For example,

! Spectrum Astro: After they agreed to merge, CB&I then met and talked about

the bidding, saying that the customer was now “D.O.A.” CB&I discussed

colluding with PDM to both [ ] to the customer. Then, for the first

time they did not have “fractious competition” between them and quoted high

prices, as in the originalplan. That’s not all. After the merger, CB&I raised the

bid and the margin way above any pre-merger levels (margins increased from [ 

 ] to [ ] ). The customer, Mr. Thompson, was extremely unhappy. (Scully,

Tr. 1194; Scorsone, Tr. 5112, 5114; CX 1489 at 3; CX 242 at 2, in camera;

CX 1705)

! TRW: Just weeks before this trial, CB&I met with their only claimed competitor,
6

Howard Fabrication, and agreed to “coordinate onmaking a price bid” to TRW.

CB&I knew that it and Howard were bidders on this same project. As the

customer, Mr. Neary, testified: TRW is now “basically hosed.” (Gill, Tr. 247,

274; Neary, Tr. 1451) (Emphasis added)

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

the price on an LNG tank down by about $5 million and to a margin of [ 

]. That, of course is good. But, once the merger was announced, CB&I and

PDM met and discussed pending bids. CB&I then dropped out of the bidding,

and the price went up in what PDM called a “fat” and “rich” bid, and the margin

increased in camera: (RX 323 at12). After the merger, CB&I moved the

price and margins up again to over a 22.3% margin – which is nearly double

CB&I’s world-wide average margin. (CX127 at 5; RX 323 at 12; Scorsone Tr.

5263; CX 1628 at 23)

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

Boththeir bids were well belowany other competitor’s. CX 906 at 2, in camera.

After the merger in 2002, CB&I bid more than a [ ] margin for a similar tank

in Memphis. CB&I based this [ ] margin on the actual margin they had at [ 

 ]. (CX 906 at 2, in camera; CX 732 at 3; Scorsone, Tr. 5324-25, in

camera) The customer, who is obviously aware of foreign suppliers has chosen

not to pursue any of them, calling CB&I the “only qualified supplier.”(CX1157)

! [ ] : in camera: [

 

 ] the initial price was $16 million. After the merger, CB&I was asked for

a firm offer, and it proposed a price of $21.6 million. (CX 1573 at 2)

! Other instances of higher prices and margins post-merger (e.g., Yankee Gas,

Fairbanks, Linde, Praxair, [ ], etc., discussed in Section III below) also

demonstrate that CB&I has had few competitive restraints on it once PDM was

eliminated.

CB&Icannotwalk awayfromthese stubbornfacts. Indeed, rather than contest them, their

own expert would not even admit to evaluating this evidence. (E.g., Harris, Tr. 7466, 7498, 7506, 7508-

09) And it wasn’t as if CB&I just got lucky. This was its plan all along: get rid of their nemesis, PDM,

and make higher margins. For example,

! Before themerger,PDMknewthat “CBI and PDM are oftenthe only competitors

for...cryogenic”tanks, and indeed wasthe only competitorforlarge TVC’s. (CX
7

68 at 6; CX 660 at 5; CX 94 at 27; Scorsone, Tr. 5153-5154) Moreover, it

regarded CB&I as the “most aggressive competitor” that it was facing in the

market. (CX 660 at 3) Thus, it was making less money due to the heavy

competition. (Id.; CX 76 at 26 (Competition from CB&I “forced: PDM “to bid

at lower margins”; Scorsone Tr. 5152))

! Thus, to solve its problemwithCB&I, PDM considered buyingCB&I to achieve

“marketdominanceinWesternHemisphere.” (CX 74 at 19; Scorsone, Tr. 5169)

! Once PDM decided to combine with CB&I, it also recognized that there were

“antitrust issues,” which were discussed by the PDM board. (CX 389 at 2)

! Before the merger,CB&I likewise didn’t like the fact that competitionwasforcing

its margins lower, and it warned investors of that issue. (CX 1716 at 8

(“competition has resulted in substantial pressure on pricing and operating

margins”) Once CB&I eliminated PDM as a competitor, it never again mentioned

competition’s effect on margins as a problem. (CX 1633; CX 1021; Glenn Tr.

4375-4377) 

! Before the merger,CB&Istressedthatitsmargins had “fallen” down to anaverage

for cryogenic (LNG, LPG, and LIN/LOX/LAR) bids to [ ] and that their

“Principal US Competitor” was PDM. (CX 227 at 16, 20, 22) As one CB&I

executive reported to management, “PDM is ‘eating our lunch’” at low margins.

(CX 243 at 1) In one example, PDM is the lower cost producer, bidding at a [

 ] margin, and winning against CB&I. (CX 764 at 9333)

! So, CB&I considered solving its competition problem by buying PDM but it

recognized that theycould “face anti-trustrisks,” “customers could get upset”and

the merger “could create competition void for 1-3 years.” (CX 629 at 3084, in

camera) (CX1627 at138) (“AntitrustIssues”) Yet, CB&I decided to buy PDM

anyway.

Evidence of Respondents’ implementation of the merger also reveals their anticompetitive plan.

Before closing on the deal, Mr. Scorsone “brainstorm[ed]” with his staff and decided on a strategy to

“create barriers to entry,” “defend an expanding market share,” prevent “smaller competitors to take

share,” and defend and “grow” markets. (CX 101 at1; Scorsone, Tr. 5204-5205) None of this

anticompetitive behavior would risklowermargins. Indeed, their plan was to achieve “premiums” fortheir

products and an increase in margins, which is of course what they actually did. (CX 101 at 1-2)
8

(Emphasis added). Respondents had no expectation of losing market share from any alleged entry.

(Scorsone, Tr. 5208) Scorsone’s strategic plan for the merger didn’t stop at the PDM front door. He

discussed these same strategic points with his competitor, CB&I. (Scorsone, Tr. 5209; CX 1544 at

7941)

In the end, Respondents created what CB&I’s management called, the “900 pound gorilla.”

(CX1681 at 1). As Mr. Glenn put it, the merger gave CB&I “unequaled capability” and “execution

capabilities unmatched by competitors.” (CX 1720 at 1; CX 1532 at 1) As they boasted internally

regarding the LNG market, “no other company in the world is more uniquely orstrategically positioned to

capitalize onthat emergingmarket.” (CX 832 at 5) There is no talk of entry or anything that might possibly

disturb CB&I’s vision of “margin improvement and accelerating earnings growth.” (CX 1527 at 2) As

Mr. Glenn admitted, the acquisition of PDM allows CB&I to expand market share in all these markets.

(Glenn, Tr. 4252, 4259, 4315-16, 4321)

The bottom line isthatRespondents carefully planned, executed, and noware reaping the rewards

oftheir strategy to dominate the markets at issue inthis case. [ ] have gone up from pre-merger levels

of approximately 2.5% to [ ] of 22-30%. Nothing has stopped CB&I’s quest for more profits at

the expense of the customer – except what this Tribunal and the Commission have left to do: order

divestiture.

! Respondents’ “Exiting Asset” Defense Has Been Rejected By The FTC.

Finally, Respondents claim what they call an “exiting asset” defense. Their defense has been

rejected by the Commission and has never been accepted by any court. Olin, 986 F.2d at 1307.

Complaint Counselrespectfully submitsthat this Tribunalshould not be enticed to ignore current law in an

attempt to carve out a new rule that has already been rejected by the Commission.
9

* * * * *

Insum, the substantial 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. Accordingly, this Tribunal

should follow Congress’ mandate in Section 11(b) of the Clayton Act and order CB&I to divest allofthe

assets it acquired from PDM, and take other steps necessary to reestablish it as a distinct and separate,

viable and competing business in the relevant markets, including restoring plant and equipment and

personnel, and taking other steps to reestablish the PDM EC and Water divisions astheyexisted prior to

February 7, 2001.

I. THE STRUCTURAL EVIDENCE OF EXTRAORDINARILY HIGH

CONCENTRATION IN THERELEVANTMARKETS DEMONSTRATES THAT THE

ACQUISITION MAY LESSEN COMPETITION SUBSTANTIALLY.

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 (Emphasis added). 

“May”

To prove a violationofSection7,Complaint counsel“needonlyprove that the [acquisition’s] effect

‘may be substantially to lessen competition.’” California v. American Stores Co., 495 U.S. 271, 284

(1990)(emphasis inoriginal)(citing 15U.S.C. § 18) The law“does notrequire proofthat a merger or other

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

anappreciable danger ofsuchconsequencesinthe future.” Hospital Corp. of America v. FTC,807F.2d

1381, 1389 (7th Cir. 1986). Indeed, “Congress has empowered the FTC...to weed out those mergers

whose effect ‘may be to substantially lessen competition.’ ” Heinz, 246 F.3d at 713, quoting H.R. Rep.

No. 1142, at 18-19 (1914). Justice Brennan, in the seminal du Pont case, explained:
10

“Section 7 is designed to arrest in its incipiency not only the substantial lessening of

competition from the acquisition...but also to arrest in their incipiency restraints or

monopolies in a relevant market which, as a reasonable probability, appear at the time of

suit likely to result from the acquisition.... The section is violated whether or not actual

restraints or monopolies, or the substantial lessening of competition, have occurred or are

intended. ”

U. S. v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 589 (1957), citing S. Rep. No. 698, 63d

Cong., 2d Sess. 1 (ClaytonAct designed tostopanticompetitive effectsfrommergersintheir “incipiency”).

 

“Substantially”

Whether the relevant markets are “substantially” affected by the acquisition is measured by the

concentration of the markets before and after the acquisition. See, e.g., Merger Guidelines § 1.0

(Necessary to examine whether an acquisition “significantly increases concentration”); 4 P. Areeda, H.

Hovenkamp & J. Solow, Antitrust Law ¶ 927 (rev. ed. 2000) (hereinafter “Areeda”) (“substantially” is

measured by concentration in the market). 

The reasonthat highconcentrationissucha good barometer ofwhether anacquisition“may” affect

a market “substantially” is the well-established economic theory “that, where rivals are few, firms will be

able to coordinate their behavior, either by overt collusion or implicit understanding” or unilaterally raise

prices. Heinz, 246 F.3d at 715, quotingFTC. v. PPG Indus., 798 F.2d 1500, 1503 (D. C. Cir. 1986);

Merger Guidelines §§ 2.1, 2.2. Of course, anticompetitive effects have already occurred in this case.

But usually this is rare, and it is the statistical market-share analysis that creates a legal presumption that

coordinated or unilateral effects may be likely. Heinz, 246 F.3d at 715. 

Under the Merger Guidelines, market concentration is measured by determining the market

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

3

 Despite Repondents’ concession on the market definitions, Complaint Counsel still presented substantial

evidence on these definitions. (See, e.g.,Price, Tr. 450; Hall, Tr.1781, Kistenmacher, Tr. 839-840, Hilgar,

Tr. 1385, Scorsone, Tr. 5170, Crider, Tr. 6179; Higgins, Tr. 1262-1263) 

 

4

 “For example, a market consisting of four firms with market shares of 30 percent, 30 percent, 20

percent and 20 percent has an HHI of 2600 (302 + 302 + 202 + 202 = 2600). The HHI ranges from 10,000

(in the case of a pure monopoly) to a number approaching zero (in the case of an atomistic market).”

Merger Guidelines, § 1.5, n.17.

11

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

method” of measuring market concentration); Merger Guidelines, § 1.5. To determine the HHI’s, one

first identifies the markets at issue and the market shares of the participants. Here, Respondents have

conceded that field-erected LNG tanks, LNG import terminals, LNG peak shaving plants, LPG tanks,

LIN/LOX/LARtanks, and large thermal vacuum chambers built in the United States are relevant product

markets. There are no economic substitutes for these products to which buyers would turn in response

to a significant increase in their price. Even Respondents’ expert witness, Dr. Barry Harris accepted the

product markets defined in the complaint. (See Harris, Tr. 7192, 7280, 7300, 7324).3

Once the markets are established, the HHI calculationis performed by summing the squares ofthe

market shares of all firms in the market.4 When concentrationis high and the merger causes a significant

change in the shares (e.g., over 1,800 HHI and a change of >100), an acquisition is “presumed” to be

“likely to create or enhance market power.” Merger Guidelines § 1.51 (Emphasis added); Heinz, 246

F.3d at 715 (explaining that high concentration “establishes a ‘presumption’ that the merger will

substantially lessencompetition”). When post-acquisition HHI measurements are inthe range of3,500 to

4,800, the FTC and courts have uniformly held that there is “by a wide margin, a presumption that the

merger will lessen competition.” Heinz, 246 F.3d at 716; See Coca-Cola Bottling Co. of the

Southwest, 118 F.T.C. 452, 586 (1995) (holding that HHI’s ofover 3,570 are “far above those that the
 

5

 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. 

12

courts have held to establish a legal presumption of illegality”).

In other words, where Complaint Counsel shows post-acquisition HHI levels well above 1,800

(here theyare far above 5,000), the case is over unlessRespondents“produceevidence”to rebut thislegal

presumption. When the evidence demonstrates that concentration is high, the “more evidence the

defendant must present to rebut it successfully.” U.S. v. Baker Hughes, Inc., 908 F.2d 981, 991 (D.C.

Cir. 1990). 

Those are the standards; here are the results:

A. The Acquisition Greatly Increased Concentration in Highly Concentrated

Markets To Extraordinary Levels.

Complaint Counselhasestablished that the acquisitionhasled to extraordinarily highconcentration

in each of the relevant markets. This structural evidence alone establishes that the acquisition will “pose

a risk to competition”, and therefore establishes a strong presumption that the acquisition would reduce

competition. FTC v. Cardinal Health, Inc., 12 F.Supp.2d (D.D.C. 1998) at 54. 

Asthe Merger Guidelines requires, Complaint Counselhas demonstrated the highmarketshares

for each of these markets. Because sales of the relevant products are made infrequently, Complaint

Counselhas examinedmarketshares overtenyears, from1990 to the time ofthe acquisitioninearly 2001.

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

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

relevant markets, CB&I and PDM have accounted for over [ ] of all sales made over the last 10

years.

5

 In LNG tanks and thermal vacuumchambers, these two firms have together accounted for all of

the sales. 
13

The results are clear. For example, 

LNG: The post-acquisitionHHIfor LNGtanksis 10,000, with a change of[ ]. Even

if post-acquisition market shares were relevant – and as explained below, they should have little or no

weight – CB&I has won or is the only company being considered for five LNG projects and has been

selected for another. (Glenn, Tr. 4234, 4399) The fact is that, post-acquisition, there isn’t one LNG

project in the United States that has actually been awarded where CB&I wasn’t the only one selected.

The only LNGproject that maybe awarded to another supplier, Dynegy – if it ever happens – may go to

anothersupplier only because CB&I refused to bid. Nevertheless, even if one were to include this project,

the HHI’s would stillbe offthe charts and above anything required bythe Merger Guidelines or case law.

LIN/LOX/LAR: The post-acquisition HHI for LIN/LOX/LAR is [ ], with a change

of [ ]. As discussed below, the recent awards to ATV, who was always in this market, does not

affect this conclusion. Indeed, the Merger Guidelines makes it clear that to eliminate the presumption

created by these HHIresults, ATV would have to be as “equally competitive” as PDM to “[r]eplace” the

“lost competition.” Merger Guidelines § 2.212. The undisputed evidence is that ATV cannot even come

close. (See Section II below.)

LPG: The post-acquisition HHI for LPG is [ ], with a change of [ ]. Nothing

has changed post-acquisition to even arguably affect this result, except that CB&I has acquired the firm

accounting for most of the remaining sales in the market.

TVC: The post-acquisition HHI in TVC’s is a perfect 10,000 – or, as the Merger

Guidelines calls it “a case of pure monopoly.” Merger Guidelines § 1.5, n.17.

In addition to the pure HHI calculations, under the Merger Guidelines, the undisputed fact that

CB&I and PDM have been customers’ “first” or “second” choices for well over a decade for more than
 

6

 The Commission, courts and the Merger Guidelines allow consideration of such pre-acquisition industry

evidence. E.g., Merger Guidelines §2.211, n.22 (“normal course of business documents from industry

participants”); Coca-Cola Co., 117 F.T.C 795, 945 (1994) (Using Coca-Cola’s “own documents” as

corroboration of market dynamics); Heinz, 246 F.3d at 717 (“Heinz’s own documents recognize the wholesale

competition and anticipate that the merger will end it”).

14

35% of the bids awarded in the United States for each of the relevant products demonstrates, by itself,

that “a significant share of sales in the market are accounted for byconsumers who regard the products of

the merging firms astheir first and second choices.” Merger Guidelines§2.211;(Harris, Tr. 7228 (PDM

and CB&I are the first and second choice of customers). The historical combined market shares of 100%

for LNG, [ ] for LIN/LOX/LAR (including Graver, which has exited the market); [ ] for LPG

(including Morse’s share, as it is now part of CB&I); and 100% for large, field erected TVC’s,

demonstratesindependently that this acquisitionmaysubstantially lessencompetition. Merger Guidelines

§ 2.211.

Respondents’ own documents corroborate these conclusions.6 For example, in early 2000, Mr.

Scorsone estimated for the PDM Board that PDM and CB&I each had a [ ] and Morse a [ ]

market share in domestic cryogenic tanks for a total of [ ] market share for the combined

CB&I/PDM/Morse. (CX 660 at 3; Scorsone, Tr. 5179-5180). Mr. Scorsone also admitted that CBI

was PDM’s only competitor on domestic LNG, LPG and TVC projects. (Scorsone, Tr. 5181; CX 660

at 2, 5) He admitted that these were the “best” estimates he could “make.” (Scorsone, Tr. 5181) There

is no evidence to the contrary.

! There Is No Legal Basis Supporting Respondents’ Claim That This Tribunal

Should Shorten The Relevant Time Period or Reject Pre-Acquisition Evidence.

Respondents assert two arguments to counter these HHI’s: (i) that the time period used by

Complaint Counsel is too long, and if one used a shortertime line (e.g., two years) either CB&I or PDM
15

would notshowupas a winningbid insome ofthe markets;(ii) that one should forget about the competitive

historybefore the acquisitionand insteadexamine only the post-acquisitionworld. Each of these arguments

is flawed.

First, the Merger Guidelines, established case law and economic theory teach that in markets

“where individual sales are large and infrequent so that annual data may be unrepresentative, the Agency

may measure market shares over a longer period of time.” Merger Guidelines, § 1.41; see Baker

Hughes, 908 F.2d at 986 (criticizing the government’s reliance on market share data for a three-year

period from 1986-1988 in a market where shares were “volative and shifting, and easily skewed”).

Evidence that high market shares are sustained over several years is regularly used in antitrust cases to

assess market power. See Heinz, 246 F.3d at 717 (There “hadbeenno significant entriesinthe babyfood

market indecades”); Borden, Inc. v. FTC, 674 F. 2d 498, 511 (6th Cir. 1982) (concluding thatBorden’s

“predominant share of the market” over a five-year period was evidence of market power); Greyhound

Computer Corp. v. IBM Corp., 559 F. 2d 488, 496-97 (9th Cir. 1977) (concluding that IBM’s market

share over a seven-year period provided evidence that “IBM possessed monopoly power”). Even Dr.

Harris testified that he could see no reason not to go back to 1995 or any particular year for that matter.

(Harris, Tr. 7228)

Nevertheless, even if Respondents were correct, their argument is meaningless. For example,

Respondents claim that they were not a competitor in the TVC market at the time of the acquisition, and

so a shorter time period would yield no change in the market by the merger. This argument is flawed for

two reasons. First, CB&I bid and then won a TVC project just six weeks before the merger, after

promising to Spectrum Astro that it could rely on CB&I as a “long-termsupplier and partner”inthe TVC

business. (CX 1599 at 7). CB&I had also bid on another TVC project just three years before and [in
16

camera: . 

 ] Second, the fact that CB&I was a major force in bidding and even winning

a recent bid demonstrates that they were a significant market participant and thus must be included in the

market for merger analysis purposes. See, e.g., FTC v. Procter & Gamble Co., 386 U.S. 568, 581

(1967) (Condemning merger with potential competitor because “[i]t is clear that the existence of Procter

at the edge of the industry exerted considerable influence on the market”); U.S. v. Falstaff Brewing

Corp., 410 U.S. 526, 533-36 (1973); United States v. Penn-Olin Chemical Co., 378 U.S. 158,

173-174 (1964). Thus, following these cases and El Paso Natural Gas, which rejected the same

argument made by Respondents here and ordered “divestiture without delay,” this Tribunal should reject

Respondents’ argument. U.S. v. El Paso Natural Gas Co., 376 U.S. 661-671 (1964) (“Unsuccessful

bidders are no less competitors than the successful one. The presence of two or more suppliers gives

buyers a choice.... If El Paso can absorb Pacific Northwest without violating § 7 ofthe ClaytonAct, that

section has no meaning in the natural gas field”). 

Finally,thisTribunalshould reject Respondents’suggestiontoignorethe pre-acquisitionevidence

and insteadfocus onpost-acquisitionevidence fortwo reasons. First, everycourtorCommissiondecision

that has examined this question, have allrejectedthis argument. “[P]ost-acquisition evidence that is subject

to manipulation bythe partyseeking to use it is entitled to little or no weight.” Hospital Corp., 807 F.2d

at 1384 (“Commission... was notrequired to take account of a post-acquisitiontransactionthat may have

been made to improve [defendant's] litigating position.”); see also B.F. Goodrich Co., 110 F.T.C. 207

at 341 (1988) (“[T]he Commission has determined that it is inappropriate to consider ‘exculpatory

post-acquisition evidence of voluntary actions by the acquiring firm’ in determining the legality of an

acquisition’”). If “post-acquisition evidence were given conclusive weight or allowed to override all
17

probabilities, thenacquisitions would go forward willy-nilly,the partiesbidingtheirtimeuntilreciprocitywas

allowed fully to bloom.” FTC v. Consolidated Foods Corp., 380 U.S. 592, 598 (1965). 

Asthe U.S. Supreme Court cautioned, “evidence showing that suchlessening [of competition] has

not, in fact, occurred cannot be accorded ‘too much weight,’” but on the other hand, “post merger

evidence showing a lesseningcompetitionmayconstitutean‘incipiency’ onwhichto base a divestiture suit.”

U.S. v. General Dynamics Corp., 415 U.S. 486, 505 n.13 (1974). The latter is, of course, this case: one

cannot miss the multiple examples of post-acquisition anticompetitive effects. And, thus, as one

commentator put it, even if there were one example of such post-acquisition anticompetitive effects, it

“cements” Complaint Counsel’s case. Von Kalinowski at 4.03[4] (Citations omitted).

* * * * *

In sum, the acquisition has increased the HHI substantially in eachofthe relevant markets at issue

inthis case to extreme HHIlevels of[ ] to 10,000 – the level of “pure monopoly.” Merger Guidelines

§ 1.5, n.17. Increases of this magnitude are far beyond the thresholds that the Merger Guidelinesstate

raise competitive concerns (i.e., a change of >100). Merger Guidelines § 1.51. The Commission has

consistently found thatsuchlarge increasesinconcentrationinanalreadyhighlyconcentrated market create

the strongest competitive concerns. Hospital Corp. of Am., 106 F.T.C. 361, 488 (1985) (finding

increases in concentration “in an already concentrated market to be of serious competitive concern”);

Coca-Cola Co., 117 F.T.C. at 943 (High HHIs create “serious competitive concerns”). Indeed, the

lowest post-acquisitionHHI in this case (for LIN/LOX/LAR) is [ ], and the highest (for thermal

vacuum chambers) is 10,000. When one compares these HHIs to recent decisions where the FTC has

prevailed, it is apparent that Complaint Counsel’s burden ofproofhas already been met overwhelmingly.

See, e.g., Cardinal Health, 12 F.Supp.2d34,54 (D.D.C. 1998) (2,224 HHI); FTC v. Swedish Match,
 

7

 Respondents also claim what they call an “exiting asset” defense, addressed in Section IV below.

18

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

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

Complaint counsel’s structural evidence therefore establishes a prima facie case that warrants a

strong presumption that the acquisition would lessen competition and therefore is illegal under Section 7.

II. RESPONDENTS FAILED TO REBUT THE PRESUMPTION OF

ANTICOMPETITIVE EFFECTS IN ANY OF THE RELEVANT MARKETS.

OnceComplaintCounselhas established a strongprimafacie case throughmarketshareevidence,

the burden shifts to Respondents to provide similarly strong evidence to rebut the presumption of

anticompetitive effects. General Dynamics Corp., 415 U.S. at 497-98. See B.F. Goodrich, 110 F.T.C.

at 305; Baker Hughes, 908 F.2d at 991 (“The more compelling the prima facie case, the more evidence

the defendant must present to rebut itsuccessfully”);Coca-Cola Bottling, 118 F.T.C. at 586 (highHHI’s

“create a strong presumptionofpossible anticompetitive effects; thus,relatively strong evidence fromother

factors willbe necessary to rebut that presumption.”); see Areeda at ¶ 911b (“Even relatively easyentry

should not ordinarily be a defense to a merger creating a monopolist or dominant firm”). Respondents

have no such evidence here.

Respondents have offered only two arguments to attempt to rebut Complaint Counsel’s prima

facie case: (i) efficiencies and (ii) ease of entry.7 Respondents abandoned their efficiencies defense at the

beginning of trial, but their attempted ease of entry defense fails. 

First, underthe law, it isRespondents’ burdento offer evidence that highlyconcentrated markets

do not prove a likelihood of anticompetitive effects. They chose to attempt an “entry” story. The problem

with their entry story, however, is that they fail to even address any of the three elements of the defense:
19

entry must be (i) timely (within two years); (ii) likely to be “profitable at premerger prices”; and (iii)

sufficient to “deter or counteract” the possible anticompetitive effects of the acquisition. Merger

Guidelines §§ 3.1-3.4; Coca Cola, 117 F.T.C. at 953 (1994) (Entry“mustbe able to restore competitive

pricing – i.e., it must be effective in offsetting any loss of competition due to the business combination in

question”). Yet, all that Respondentstried to prove wasthat Messrs. Glenn and Scorsone may think that

foreign firms may enter the LNG market. 

The only supposed evidence of entry were several press releases about joint ventures involving

TKK, Whessoe, or Technigazdesiring to enter the LNG market. Respondents conceded that the press

releases and otherso-called entryevidence would be admitted solely to prove the state ofmind ofCB&I.

This kind of evidence is inherently suspect. See Falstaff, 410 U.S. at 565-8 (Discounting defendant’s

testimony as to whether they would enter a market because “it is in the very nature of such evidence that

in the usual case it is not worthy of credit”). 

More importantly, Respondents offer no argument ofalleged entryinanymarket otherthanthese

press release about LNG tanks. The only alleged entry in LIN/LOX/LAR is ATV, who has been a

competitor for years (not an entrant) and a relatively unsuccessful one at that. There are simply no new

competitors of any kind in the markets for LPG tanks or TVCs. Thus, Respondents have failed to rebut

Complaint Counsel’s prima facie case, and the case must be decided against Respondents.

Nevertheless,let’sgothrougheachofthe entryfactorsto showhownone ofRespondents’

evidence fits the three entry criteria.

A. The Alleged Entry Is Not “Timely” (Within Two Years).

The simple fact is that two years after the acquisition no alleged entrant has won any bid for any

of the relevant products. No evidence has been presented that any entrant is even likely to win anything
 

8

 Since ATV has been in the business for years, it makes little sense to analyze it under this factor. It

is simply not a sufficient competitor to replace PDM, as discussed below.

20

in competition against CB&I, because these entrants simply cannot be anywhere near as cost effective a

competitor as PDM. The only project that CB&I proposes as proof of entry is the possibility that some

other company may win the project at Dynegy. But CB&I refused to even bid on this project, and the

company tasked withworking withprospective bidders testified that the project managers for the project

were concerned that once CB&I refused to bid, “the prices that the client would receive for those tanks

would be higher.” (Price, Tr. 578, 622) This is hardly proof of timely and sufficient entry that is profitable

at pre-merger prices.8

B. Entry Cannot Be “Profitable at Pre-Merger Prices.”

The evidence is undisputed thatCB&I and PDM were the low-cost and preferred suppliersinthis

industry. Foreign companies, withprevious joint ventures, that tried to compete in1995 inMemphis could

not come within 20% of CB&I and PDM’s prices – and at least one of these competitors was already

close to its cost. When a new LNG tank needed to be contracted for in Memphis, just last year, the

customer ignored these companies and said that CB&I was the only one qualified to do the work. [ ]

reached the same conclusion. The high level of prices for other competitors is also apparent in the

LIN/LOX/LAR market as well. As discussed below, the main problem with CB&I’s argument is that only

it and PDM were the low-cost producers withpotentialentrantslikeTKK and Whessoe pricing 20-50%

higher than them. Thus, once CB&I got PDM out of the way, it had enough room to improve its margins

by raising prices without any real threat from these alleged entrants. Merger Guidelines, n.21.

Indeed, Gerald Glenn, CEO of CB&I, admitted that with the acquisition of PDM, CB&I “now

ha[s] unequaled capability in [its] chosen field.” (Glenn, Tr. 4384; CX 1720). He also told his
21

shareholdersthatCB&I’s costs were nowlower than those of its competitors: “we can still be lowbidder

and make more money on it than most of our competitors, if not allofthem.” (Glenn Tr. 4381; CX 1731

at 42) The fact is that CB&I can “win the work” whenever they want to, unless someone bids undertheir

cost. (Glenn Tr. 4380; CX 1731 at 44) PDM and CB&I even discussed the fact that they had a “pricing

advantage” that they could use to prevent any loss of market share. (CX 1544 at 7941) Thus, no

competitor will be successful in achieving profits at pre-merger prices – instead, if they try to undercut

CB&I, as Mr. Glenn admitted, he’ll just “watch them go out of business.” (Glenn, Tr. 4380)

C. Entry Cannot Be Sufficient To Replace PDM.

There is simply no evidence that any of the supposed entrants can replace the competitive force

that PDM was before. Indeed, CB&I never expected that it would lose any ofthe marketshare it bought

by buying PDM. (Glenn, Tr. 4252, 4259, 4315-16, 4321) So far, none of these foreign entrants have

won any projects, and the only one that seems to be any possibility is Dynegy’s LNG tank, for which

CB&I refused to bid. Even that customer now has little choice and is concerned that it will have to pay

a higher price than it would have if CB&I had bid. (Price, Tr. 578,, 622) 

CB&I’s only other competition – though weak – is ATV for LIN/LOX, but it lacks capacity to

replace PDM (Cutts, Tr. 2366, 2375; CX 460 at 7235; CX 1654) [ 

 ] (Kistenmacher, Tr. 862, 870; Patterson 466-467, 470 in camera;

Kamrath, Tr. 2241, 2255 in camera) Recently, ATV did such a poor job on an Air Liquide job that the

customer asked CB&I to step in and do the project, but CB&I refused. (Scorsone, Tr. 5036) ATV’s

capacity is also so small that just recently it had to turn down two projects and could not get proper

bonding for “larger jobs.” (Cutts, Tr. 2366, 2375) 

In case after case, the Commission and courts have found that potential expansion by smaller
22

competitors like ATV was not sufficient to overcome the presumption of anticompetitive effects from

mergers creating leading firms withlarge marketshares. Coca-Cola, 117 F.T.C. at 960 (“If new entrants

cannot sufficiently expand output to prevent existing producers from raising prices, their entry will not be

sufficient to prevent a cartelfromraising prices.”); Cardinal Health, 12 F. Supp. 2d at 58 (The “absence

of another national” competitor through “merger is too great a competitive loss – which the [smaller

competitors] cannot sufficiently replace.”); Staples, 970 F. Supp. at 1087-88 (Other less-dominant

companies were not “likely to avert the anti-competitive effectsresulting fromStaples’ acquisitionofOffice

Depot.”); Swedish Match, 131 F. Supp. 2d at 170 (D.D.C. 2000) (Effective expansion by smaller firms

was “highly unlikely”); Areeda at ¶ 911b (“The nascent entrant into such a market ordinarily earns only

competitive returns, while the dominant firm’s returns are far larger”).

The only other alleged competitor that Respondents called as a witness, Technigaz, [ 

 

 .] (Jolly, Tr. 4706-10, 4715, 4720, 4757 in camera); See U. S. v. Franklin

Electric Co., Inc., 130 F. Supp. 2d 1025 at 1033-35 (W.D. Wisc. 2000) (Rejecting defendants’

assertions that the presence ofnewly established competitor, whose success was “highlyuncertain,”would

maintain the competitionthat had existed priorto the acquisition); U. S. v. United Tote, Inc., 768 F. Supp.

1064, 1080-82 (D. Del. 1991) (Because success of entry remained uncertain, such entry “would not

constrain anti-competitive price increases by incumbents”). What is also telling is thatTechnigaz would [

 .] (Jolly, Tr. 4758, in camera)

Inshort, thisis hardly evidence of entrysufficient to replace PDM. Moreover, when one considers

how CB&I has colluded on prices and increased prices and margins (see Section III below), it does not

appear that its behavior has been deterred by any supposed threat of entry. Thus, the evidence
23

demonstrates that other firms simply cannot compete at the level that PDM did against CB&I. 

D. Barriers to Entry Prevent Potential Competitors From Replacing PDM As A

Major Supplier To Force Prices Back Down To Pre-Merger Levels.

Anotherreasonwhy these alleged foreign entrants are not likely to have much ofanimpact, ifany,

is that there are significant barriers to entry. Barriers to entry are “additional long-run costs that must be

incurred by an entrant relative to the long-run costsfaced byincumbent firms.” Coca-Cola, 117 F.T.C.

at 485 (citing Echlin Mfg. Co., 105 F.T.C. 410, 485 (1985) (citing G. Stigler, The Organization of

Industry 67 (1968)). Existence of barriers reduces the effect of potential entry. Many witnesses, including

those of Respondents, testified that to be successful in these markets, a company has to be large, have

know-how, local manufacturing plants, etc. CB&I explained to its shareholders that “price, quality,

reputation, safetyrecord and timeliness are the principalcompetitive factors”in these markets. (Glenn, Tr.

4375; CX 1061 at 10) In short, not any company can do this work; there are barriers to entry. For

example, CB&I has lower costs and distinct size, quality and fabrication advantages over the

alleged competitors: 

! Gerald Glenn, CEO of CB&I, admitted that with the acquisition ofPDM, CB&I

“nowha[s] unequaled capability.” (Glenn, Tr. 4384; CX 1720) He also admitted

that CB&I has lower costs than its competitors. (Glenn Tr. 4381; CX 1731 at

42) The fact is that CB&I can “win the work” whenever they want to, unless

someone bids under their cost. (Glenn, Tr. 4380; CX 1731 at 44) PDM and

CB&I even discussed the fact that theyhad a “pricing advantage” that they could

use to prevent any loss of market share. (CX 1544 at 7941)

! Glenn also admitted thatreputationand qualitywork were advantages that CB&I

had that were not held by its potential competition. Indeed,CB&I’s competitors

include those that have financialdifficulties, do “shoddy” work, and eveniftheytry

to outbid CB&I, he expects them to eventually “go out of business.” (Glenn, Tr.

4380; CX 1731 at 44)

! CB&I’s own documents show that they believe they have a local “competitive

advantage,” “unequaled capability,” and “execution capabilities unmatched by
24

competitors.” (CX 1061 at 10; CX 1720; CX 1719)

! Gill – HowardConstruction– testified thatforeigners cannot compete inthe TVC

market due to government requirements; small companies such as his cannot

compete due to large bonding requirements; large companies have an advantage

inengineers(CB&I having over 1,000 and Howard having only 2). (Gill, Tr. 185,

200-201; see Glenn, Tr. 4356) Thus, Howard does not see it becoming as

strong as PDM was. (Gill, Tr. 201) Chart Industry agreed. (Higgins, Tr. 1272-

73)

! Cutts – ATV – testified that his company is too small to be as competitive as

PDM; ATV cannot “bond these largerjobs,” and infactrecently had to refuse “to

bid two cryogenic tanks”because theylacked “capacity.” (Cutts Tr. 2366, 2375;

see CX 460 at 2 and CX 1654 (showing ATV’s capacity is dwarfed byCB&I)).

 ATV’s woes were also corroborated by Kistenmacher – BOC – who testified

that ATV had a “very poor track record” and “had many change orders[so] that

in the end the price was higher than the price of the conventional vendors.”

(Kistenmacher, Tr. 862, 870) [ 

 .] (Patterson, Tr. 466-67, 470, in camera (wouldn’t use

ATV because of lack of experience and bad reputation)) 

! [in camera] Kamrath – Air Liquide – [ 

 .] (Kamrath, Tr. 2241, 2255, in

 camera) When Air Liquide tried to get CB&I to step in and take over

the project, CB&I refused. (Scorsone, Tr. 5036)

! Kistenmacher also testified that when Whessoe attempted to enter the U.S. in

1995 inMemphis, its bid was $15 million, while CB&I’s was $10.5, thusshowing

that its costs were higher. (Kistenmacher, Tr. 898-899)

! in camera [ 

 

 

 ] Tr. 703, 716, in camera)

! in camera 

 . (Jolly, Tr.

 4708-10, 4715, 4725, 4757 in camera)
25

! [in camera]

 

 ] (Fahel, Tr.1635-1634, 1654, in camera) [

 ] (Fahel, Tr. 1632, in camera) [

 

 ] (Fahel, Tr. 1654, 1656, in camera)

! Air Products tried to get a foreign firm (BSL) to work with them on LIN/LOX

tanks, but they simply could not compete on price. (Hilgar, Tr. 1378-79 (off by

20-30%); Fan, Tr. 955)
 

9

 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.

26

! Price – Black & Veatch – testified that foreign firms bid much higher than CB&I

and PDM on the Memphis LNG project in 1995 and that TKK couldn’t bid any

lower without losingmoney. (Price, Tr. 552) He explained that it was a business

risk to hire a foreign tank supplier without U.S. experience and that even recently

on the Dynegy project the managers of the project were concerned that once

CB&I refused to bid, “the prices that the client would receive for those tanks

would be higher.” (Price, Tr. 578, 622)

! Newmeister – Matrix – testified that it has barriers to competing at the same level

as CB&I, such as lack of equipment (worth $2-5 million). (Newmeister, Tr.

1590-91)

In sum, these barriers to entry make it unlikely that any potential competitor, or even a long-time

small competitor in the U.S., such as ATV, will be able to replace PDM as a competitive force, by filling

the capacity that PDM had or by being profitable at pre-merger prices at a level that controls CB&I’s

ability to raise prices. Both Drs. Simpson and Harris agreed that the knowledge and experience of CB&I

versus the competitioncould be a barrierto entry. (Simpson, Tr. 3214; Harris, Tr. 7440) Even Dr. Harris

agreed that entry would not be sufficient under the Merger Guidelines if CB&I had lower costs than its

potential competition. (Harris, Tr. 7438; see also Simpson, Tr. 3151) As Glenn admitted, that is indeed

the case here. This is classic footnote 21 Merger Guidelines material: two competitors, CB&I and PDM

were the lowest cost suppliers; they merged, and now prices are free to rise to the next lowest price.

Merger Guidelines, n. 21; see Coca-Cola Bottling, 118 F.T.C. at 609.9

While other firms inthe past have beenuncompetitive, any success that CB&I’s competitors may

have inthe current environment (the prospect ofwhichremains highly speculative) demonstrates that since

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

10

 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. 

27

higher-priced and less experienced firms. See, e.g., U. S. 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’”) (Citation omitted).

Insum, Respondents have simply failed to show that any of this supposed entry is timely, likely to

include profitable entryat pre-merger prices, orsufficient to replace the competition lost by the demise of

PDM. Thus, based on this failure of proof alone, Complaint Counsel is entitled to judgment as a matter

of law. 

III. POST-ACQUISITION EVIDENCE DEMONSTRATES THAT ANTICOMPETITIVE

EFFECTS ARE LIKELY, BECAUSE THEY HAVE ALREADY OCCURRED. 

Complaint counsel is not required to demonstrate that the acquisition has led to actual

anticompetitive conduct or post-acquisition price increases. Rather, the Commission and courts are

cautious inevaluating post-acquisitionpricing evidence because Respondents can, during the pendencyof

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., 807 F.2d at 1384.10 However, where there is such evidence that

Respondents have increased price, “the existence ofmonopoly power is clear” and “cements” Complaint

Counsel’s case. U.S. v. Microsoft, 253 F.3d 34, 51 (D.C. Cir. 2001); Von Kalinowski at § 4.03[4]
28

(Citations omitted). 

And there is more evidence of anticompetitive effects here thanComplaint Counselcan find in any

prior FTC case where divestiture has been ordered. Anticompetitive effects have actually turned up here

in spades: CB&I has colluded with a potential competitor and prices and margins have increased

dramatically. Under the law, if Complaint Counsel had nothing else, it could base its entire case on just

one of these instances. General Dynamics, 415 U.S. at 505, n.13 (“[P]ost merger evidence showing a

lessening of competition may constitute an ‘incipiency’ on which to base a divestiture suit”); Merger

Guidelines § 2.2; TastyBaking Co. v. Ralston Purina, Inc., 653 F. Supp. 1250, 1267 (E.D. Pa. 1987)

(“Themostrecent evidenceofdefendants’ monopoly power isfound indefendants’post-acquisitionpricing

decisions”). 

Many witnesses, including admissions from Mr. Scorsone, and dozens ofdocuments proved that

prices and marginsindeed went up and thatRespondents had discussed at least one bid with a competitor.

When faced with these facts, Dr. Harris claimed a lack of any knowledge ofthem. (E.g. Harris, Tr. 7498

(regarding price increase at Cove Point: “I don’t remember every little price, . . . I don’t remember the

details”); Harris, Tr. 7506 (Doesn’t remember [ ] price increase); Harris, Tr. 7508-9 (Doesn’t

“remember one way or the other” [ ] price increase); Harris, Tr. 7466 (“unaware” of change in

competition for [ ] higher bid)).

Even more striking, however, are the examples of actual or attempted collusive behavior just

before and after the acquisition. Merger Guidelines § 2.1 (Lessening of competition includes “tacit or

express collusion,” which “may or may not be lawful in of itself”); Areeda at ¶ 944b (Presumption of

illegalityifeither one ofthe “merging firms had been a participant in such collusion or attempts”); CrouseHinds Co. v. Internorth, Inc., 518 F. Supp. 416, 422 n.10 (N.D.N.Y. 1980) (“pre-acquisition
 

11

 Cardinal Health, 12 F. Supp. 2d at 63 (Evidence of pre-acquisition competition, intent to stabilize

pricing, and pricing coordination). The evidence introduced by Complaint counsel is precisely the type of

evidence that was lacking in Baker Hughes. See Olin, 986 F. 2d at 1305 (“The clearest reason why Baker

Hughes does not control here is that the Commission responded to the Company’s rebuttal, whereas in Baker

Hughes, the government did not”). 

29

anticompetitive conduct of a firm is probative of similar conduct being repeated in the future”).11

Regarding “collusion,”two pointsshould benoted. First, for a collusionincident to be anindicator

of anticompetitive effects, Complaint Counsel has a burden of proffering “far less than a showing of

collusion.” FTC v. Warner Communications Inc., 742 F.2d 1156, 1160 (9th Cir. 1984) (Reversing

district court’s holding that FTC had to prove actual collusion). All that is required is a showing of a

likelihood of tacit or express collusion. Id. The evidence can even be of collusion involving persons in

related markets other than the respondents. See Coca-Cola, 117 F.T.C. at 960 (a historyofprice fixing

in bottling market indicatesthat this kind ofmarket “has not always been protected by competitive market

forces”). The evidence here is far more direct.

Second, what Complaint Counselpresented during thistrialwas evidence of actual collusion that,

under current law, would entitle any prosecutor or plaintiff to take this case to a jury. Under current law,

collusionmaybe established bycircumstantialevidence ofprice movements and another “plus”factor,such

as evidence of a meeting, information exchanges, etc. See Todd v. Exxon, 275 F.3d 191, 198 (2d Cir.

2001) (Defendants’ use offacilitating practices” like informationexchanges); Arnold Pontiac-GMC, Inc.

v. Budd Baer, Inc., 826 F.2d 1335, 1338 (3d Cir. 1987) (Internal memo documenting a meeting with

alleged co-conspirators was sufficient).

C. By Eliminating its Only Significant Competitor,the AcquisitionIncreases CB&I’s

Market Power

As discussed in the introduction above, CB&I and PDM were each other’s closest competitor,
 

12

 CB&I’s pre-acquisition intent is highly probative of the likely effects of the acquisition. See U.S. v.

Hammermill Paper Co., 429 F. Supp. 1271, 1287-88 (“evidence indicating the purpose of the merging parties,

where available, is an aid in predicting the probable future conduct of the parties and thus the probable effect

of the merger”), quoting Chicago Bd. of Trade v. U.S., 246 U.S. 231, 38 S.Ct. 242 (1918).

30

driving each other’s prices and margins down. Each independently determined that it would be better off

if it eliminated the other as a competitor.12 The resulting elimination of PDM as a “substantial independent

competitor”is evidenceofanticompetitive effectthat warrantsjudgment againstRespondents here. Heinz,

246F.3d at716(Whentwo competitors competed forthe lower price position, it issimply “anindisputable

fact that the merger will eliminate competitionbetween” them, and it would seemobvious that prices would

rise); Swedish Match, 131 F. Supp. 2d at 169 (A “unilateral price increase by Swedish Match is likely

after the acquisition because it will eliminate one of Swedish Match’s primary direct competitors.”);

Staples, 970F.Supp. at1083(“Themergerwould eliminate significant head-to-head competitionbetween

the two lowest cost and lowest priced firms in the superstore market”). 

The Merger Guidelines recognizes that anticompetitive effects may be likely when a “significant

share of sales”inthe market are made to buyers who “regard the products ofthe merging firms astheir first

and second choices.” The Merger Guidelines § 2.21; R.R. Donnelly & Sons Co., et. al., 120 F.T.C.

36, 193-201 (1995) (discussing the unilateral exercise ofmarket power through a combinationofthe two

closest substitutes and citing to Merger Guidelines § 2.21). The Guidelines also presumes that if the

combinedmarket shares of the merging firms reaches 35%, that “a significant share of salesinthe market

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

choices.” Merger Guidelines, § 2.211. Thus, by any standard, the fact thatCB&I eliminated its closest

competitor and achieved more than double the 35% safe harbor level of the Merger Guidelines is

independent evidence of anticompetitive effect that warrants a finding against Respondents. 
31

Thisfindingis, asthe Merger Guidelines explains,especiallyappropriatewherea mergerinvolving

the first and second lowest-lowest costsellers could cause pricesto rise to the constraining levelofthe next

lowest-costseller. (Id. at n.21) This theory of unilateral anticompetitive harm through a merger of the two

lowest-cost sellers has support in the economic literature. See, e.g., Tschantz, Crooke, and Froeb,

Mergersin Sealed versus Oral Auctions, 7 INT’LJ. OF THEECON. OFBUSINESS 202 (2000) (“A merger,

or bidding coalition, has the potential to change the identity of the second-place bidder, and thus change

the winning price,” when “the merged coalition includes both the winning bidder and the second-place

bidder”);JonathanBaker,Unilateral CompetitiveEffects Theoriesin Merger Analysis,11ANTITRUST

21 (Spring 1997). This effect is exactly what the evidence demonstrates (see discussion of “effects”

below).

In recent years, the FTC has brought numerous cases in which an acquisition involved the

eliminationof eitherthe closest, or a significant competitor of the acquiring firm. See, e.g., Heinz Co., 246

F.3d at 711-12, 725 (The merger of the two low cost providers may likely “increase prices”); Swedish

Match, 131 F. Supp. 2d at 169 (Merger of two closest competitors made it “likely” that prices would

“increase”); Staples, 970 F. Supp. at 1082 (Merger of two low cost providers ofoffice suppliers would

allow the resulting company to “increase prices or otherwise maintain prices at an anti-competitive level”);

FTC v. Coca-Cola Co., 641 F. Supp. 1128, 1139 (D.D.C.1986),vacatedasmoot,829 F.2d 191 (D.C.

Cir. 1987) (“The stark, unvarnished truth is that the Dr. Pepper brand has been a staunch effective

competitor in the market, that Coca-Cola Company has tried to stifle...and that it has failed. It is now

seeking to buy out its competitor”).

Because there are no other established competitors besides CB&I and PDM in any ofthe relevant

markets, the loss of competition between CB&I and PDM creates a particularly strong potential for
32

anticompetitive effects. See Areeda at ¶ 911a (“No merger threatens to injure competitionmore thanone

that immediately changes a marketfromcompetitive to monopolized”). Indeed, Respondents themselves

planned to use the acquisition as a means to increase pricing and profit margins. 

! Actual Evidence Of Anticompetitive Conduct Independently Requires A Finding

Of Liability Against Respondents In This Case.

Although not required to prove that anticompetitive effects have occurred in order to establish a

violation of the law, Complaint Counsel has done so in spades. For example, 

Spectrum Astro: In the late 1990's, CB&I and PDM engaged in what Respondents’

counsel called “fractious competition” on a TVC deal for [ ] (discussed below). (Scully, Tr.

1193-94) But by August 2000, CB&I and PDM had agreed tentatively to a deal. And, we now know

that theymet and discussed the pendingbiddingforSpectrum Astro, whichhad asked eachofthemforfirm

offers(not budget prices). Mr. Scorsone (at the time, PDM’s President of EC Division) admitted that Mr.

Jordan(Vice President ofCB&I) discussed withhimthat Spectrum Astro was now “D.O.A.” (CX 1705;

Scorsone, Tr. 5112, 5114) Obviously, the meaning was that Spectrum Astro wouldn’t see the type of

fractious competition he was expecting and was simply dead meat. (See CX 242 at 2, 3, [ 

 

 ] in camera) Mr. Jordan could not have possibly meant that the deal was

off – both parties actually bid on the deal shortly thereafter. Nor wasthe discussionunimportant:Indeed,

Mr. Scorsone instantly briefed the Vice President ofLNG/Aerospace,Jeff Steimer, and the note appears

in the Spectrum Astro contract file. (Scorsone, Tr. 5114; CX 1705)

Once the two companies decided that Spectrum Astro was toast, they needed to decide how to

raise price. And indeed, a memo was circulated at CB&I suggesting that both PDM and CBI [ 
 

13

 A plan to merge in the future does not justify CB&I and PDM fixing prices, allocating customers or

otherwise combining their businesses, while the antitrust authority is investigating the competitive effects of

the transaction. See United States v. Computer Assoc., Inc., Civ. No. 01-02062 (GK) (D.D.C. 2002)

(Competitive Impact Statement filed April 23, 2002) (“The pendency of a proposed merger does not excuse

the merging parties of their obligations to compete independently. Thus, pending consummation, activities by

one party to control or affect decisions of another with regard to price, output or other competitively

significant matter may violate Section 1."); United States v. Gemstar-TV Guide International, Inc., Civ.

No. 1:03CV00198 (D.D.C. 2003) (complaint and proposed consent order filed February 6, 2003); Justice

Department Reaches Settlement with Gemstar-TV Guide for Illegal Pre-Merger Coordination

(http://www.usdoj.gov/atr/public/press_releases/2003/200740.htm).

33

 ] or submit [ .] (CX 242 at 2 in camera) Then, for the first time CB&I and PDM did not

have “fractious competition” betweenthemand quoted highprices, assuggested in CBI’s plan.13 (Scully,

TR. 1194) That’s not all. After the merger, CB&I raised the bid and the margin way above any premerger levels (margins increased from[ ] to [ ]). (CX1489 at 3) The customer, Mr. Thompson,

was extremely unhappy. (Thompson, Tr. 2111, 2057; CX 566 at 2)

There is simply no lawful reason why these two competitors were discussing a pending bid. The

fact that they saw nothing wrong withit, and indeed laughed about the fact that the customer was going to

suffer as a result of their collusion is shocking. Moreover, the undisputed fact that Mr. Scorsone then

authorized a significant increase in bothprice and margin after the merger demonstrates independently the

exercise of market power by CB&I. This evidence together with the admitted testimony from Mr.

Scorsone that CB&I lied to Mr. Thompson about the cost increases (Scorsone, Tr. 5123-25) show the

inclination of CB&I to be anticompetitive. Respondents’ counsel made the same point himself when he

asked Mr. Thompson, “And ifyouhave anopportunitylater...to stuffsome extra profit into the work, don’t

youtrytotake it?” (Scorsone, Tr. 2119) Of course, Mr. Thompson’s and this Tribunal’s answer to CB&I

must be a resounding, “no.”

TRW: In2002,duringthe pendencyofthislitigation, CB&I pulled the same kind of illegal
34

stunt with another customer and potential competitor. In the Fall of 2002, TRW requested rough order

magnitude pricing from the only two possible remaining sources for thermal vacuum chambers, Chicago

Bridge and Ironand Howard Fabrication. After CB&I made its presentation to TRW, CB&I’s salesman,

Mike Miles went directly to the offices of John Gill from Howard. During the meeting the TRW job was

discussed and CB&I’s Mike Miles asked Gill whether Howard Fabrication to agree to “coordinate on

making a price bid” to TRW. (Gill, Tr. 247) CB&I knew that Howard was also a bidder on the project

before Miles made this offer to coordinate on prices. (Gill, Tr. 274) 

As explained above inSectionI, this kind of conduct isflatly illegal. At worst, like the conduct with

PDM in the Spectrum Astro bid, it is a violation of Section 1 of the Sherman Act. At best, it is a clear

attempt to take out the only other competitive influence in the market, which is hardly consistent with

CB&I’s claim during their opening brief and argument that Howard’s competition would restrain CB&I

from raising prices. In the end, this conduct by the same people at CB&I who sell both TVC’s and LNG

tanks demonstratesthattheir strategy isto dominate the market anywaytheycan, and the customer, as Mr.

Neary of TRW testified is “basically hosed.” (Neary, Tr. 1451)

The Cove Point, Maryland Project: In early 2002, PDM was asked to bid on a

750,000 barrel LNGtank forColumbia LNGto be built at Cove Point. (CX 293 at 1). PDM recognized

that it was bidding againstCB&I and, therefore, had toprovidea “verycompetitive price to be successful.”

(CX 293 at 1). [ ] (CX 226 at 1, in camera). CB&I

initially bid approximately [ ]. (RX 127 at CBI-H008204). The customer was able to leverage

CB&I’slower price to force PDM to lowerits price by$5 millionat margin levelsinthe range of[ ] (CX

127 at 5; CX 226 at 1, in camera). The threat of losing Cove Point to PDM prompted

CB&I to lower its price even further to [ ]. (CX 226 at 2, in camera); (CX 863).
 

14

 It is also clear that if CB&I had bid, it would have saved the customer at least $4.7 million. (Cf.

CX906-4, in camera ([ ])).

35

Columbia sold Cove Point to Williams in June of 2000, and Williams increased the size of the

LNG tank proposal from 750,000 to 850,000 barrels. (CX 863; Harris, Tr. 7724-7725, 8061-8062;

Scorsone, Tr. 4964-4966). On August 29, 2000, CB&I and PDM agreed to merge, and as we now

know, the parties met and discussed at least one pending bid. Then, in contrast to its pre-merger eagerness

to beat PDM, CB&I chose not to rebid on Cove Point. (Scorsone, Tr. 4965). 

PDM thentook advantage ofCB&I’s withdrawalto implement a series ofpriceincreasesonCove

Point. By November 1, 2000, PDM decided to increase its September bid from [ 

 ] to [ ]. (CX 1388 at 2; CX 1160 at 2, in camera). The next day, November 2,

PDM submitted an even higher bid to Williams of [ ] raising the margin to [ ] 

 (Scorsone, Tr. 4985; CX 1160 at 1-2, in camera; RX 323 at 12). A senior member of PDM’s Cove

Point team wrote that the November 2 bid was [ ] in part because the higher price came on

top of prior estimates that had already been [ .] (CX 1160 at 2-3, in camera).

After the acquisition, CB&I has increased the price of the Cove Point LNG tank to $34 million.

(Scorsone, Tr. 5263). CB&I projects that it will earn a whopping margin of approximately $7.6 million

or 22.35% on Cove Point. (Id.)

14 This price is approximately [ ] times the projected margin that

CB&I was willing to accept in March of 2000 when, before the merger, CB&I was trying to beat PDM

on Cove Point, and the percentage margin is nearly [ ] times greater than before. (RX 127 at 5;

Scorsone, Tr. 5263).

These undisputed facts demonstrate CB&I management’s inclination to coordinate onprices (by

withdrawing, when it thought PDM would bid higher and as a consequence give CB&I the resulting higher
36

margin after the merger) and to raise prices and margins (from a low of [ ]to 22.35%) as if no real

competitive pressures impacted them at all. This evidence independently warrants a finding against

Respondents.

The Memphis LNG Projects: In 1995, with an [ ], CB&I beat PDM for

an LNG tank in Memphis. Both their bids were well below any other competitor’s. (CX 906 at 2, in

camera) For example, Whessoe was nearly 50% higher than CBI on its bid. (Kistenmacher, Tr. 898-

899) After the merger in 2002, CB&I bid more than a [ ] margin for a similar tank in Memphis. CB&I

based this [ ] on the actual margin they had at Cove Point. (CX 732 

at 3; Scorsone Tr. 5324-25, in camera) Even though CB&I has now been able to increase its proposed

margin by[ ], the customer believes that it is stuck and cannot get a better deal from any of the alleged

foreign competitors. (CX 1157 at 1)

Linde/Praxair/MG: In the LIN/LOX/LAR tank market, after the acquisition, CB&I has

raised prices approximately 8.7% to both Linde and for two different tanks to Praxair. (CX 1584 at 2;

CX 448; RX 92 at 7402, 7411; Fan, Tr. 1009-10). The fact that all these prices had increased exactly

8.7% frompre-merger pricesconfirmsMr.Fan’sdetailedconclusionsthat his price fromCB&I had indeed

increased the same exact amount. These price increases were not the result of changes in cost, which had

actually decreased. (CX 1605 at 2) Prior to the merger, PDM’s margins were approximately [ ], and

CB&I’s were even lower than that. (CX 243; CX 764 at 37) [ 

 

 ]

 : Respondents’ TVC pricing to [ ] demonstrates both how competition

between CB&I and PDM drove TVC prices down prior to the acquisition and how, following the
37

acquisition, CB&I has increased price. In [ ], [ ], which is now owned by [ ],

procured a large, field-erected, mailbox-shaped thermal vacuum chamber that [ ] now calls

the [ ]. ([ ] Tr. 1740, [ ], in camera). [ ] used a competitive bidding

process to procure the [ ]. ([ ], in camera). [ ] testified that his

responsibility was to complete the project below cost and that the competitive bidding process would

provide [ ] with the lowest cost possible. ([ ], in camera). Faced with

competition from CB&I, [ ] during the

last bid and approximately [ ] million less than its original bid. ([ ], in camera; see

Scully, Tr. 1166 (after the bid was awarded, CB&I learned that, at the last opportunity in the bidding

process, PDM had further lowered its price by “something in the order of as much as [ ]million.”);

CX 261 at CBI-H004029 ([ 

 ] ); [ ], in camera) In the end, [ 

] was able to use the close competitionbetweenCB&I and PDM to lowerthe price of a TVC from a high

bid of [ ] milliondown to itsfinalprice of approximately [ ] million, to obtain additional items, and

to benefit from CB&I and PDM’s cost-saving, design innovations. 

On a different project, at [ ], pre-acquisition, PDM quoted a price of [ ]

in its proposal to [ ], but the customer chose to postpone the project. (CX 1573 at 6, in

camera; [ ] , in camera). After the acquisition, [ ] asked CB&I for a firm fixed

price renewal of PDM’s earlier bid for the TVC. ([ ], 1935, in camera). [ ] was

disappointed to receive CB&I’s post-acquisition price of [ ] or an increase of 35%,or

over [ ] for the project from CB&I. ([ ] , in camera; CX 1573 at 3, in

camera). ([ ], in camera). In the absence of PDM, CB&I can now dictate its own
38

bidding conditions a nd victimize customers who have no other suppliers to turn to. The fact that CB&I

can push around one of the largest manufacturing companies in the United States is evidence of its

enormous market power achieved as a result of the acquisition.

The Fairbanks, Alaska Project: In 2002, Fairbanks explored the possibility of

expanding its storage capacitywitha field-erected LNG tank. Based on an outside consultant’s analysis,

Fairbanks concluded that the tank it wanted would cost approximately $2.2 million dollars. (CX 370 at

18, 19, 21 (Britton, Dep.)). But CB&I’s $3.6 million price was $1.4 million higher than Fairbanks’

estimate of $2.2 million based on its consultant’s analysis. (RX 407 at CB&I 066666; CX 370 at 19

(Britton, Dep.)). CB&I had also included a 50% margin for the job. (RX 407 at 6666 (“includes 20%

margin” plus “30%” for location). Yet, on a recent LNG tank project in nearby British Columbia before

the acquisition, PDM had offered a price that was comparable to the estimated price of$2.2 millionforthe

tank –demonstratingthat ifPDM had not beeneliminated fromcompetition, Fairbankscould have received

a substantially lower price. (See CX791 at 260; CX370 at 94-97 (Britton, Dep.))

The Yankee Gas Project: After the acquisition, CBI used strong arm tactics with

Yankee Gas to ensure that competition remained at a bare minimum for the construction of LNG peak

shaving facilities. In 2001, Yankee Gas, a natural gas distribution company, began plans to construct a

360,000-barrel LNG peak shaving facility in Waterbury, Connecticut. (JX 21 at 17, 18 (Andrukiewicz,

Dep.)). In April of 2001, Yankee Gas had its contractor, CHI, solicit bids for the LNG tank alone. (CX

1507 at CBI 059483). Yet, CB&I refused to bid on the LNG tank alone. (CX 430 at CBI 026934-

HOU; CX 1507 at CBI 059483). CB&I then agreed to offer a bid if it did not have to go through the

contractor. Through its hard-hitting negotiating tactics, CBI forced Yankee Gas to limit its choices of

potential builders of the project. Still, CBI’s budget estimate for the Yankee Gas project anticipates a
39

margin of [ ] well-above its pre-merger levels. (RX 54 at CBI 026812-HOU, in camera; CX 421 at

CBI 026843-HOU; Scorsone, Tr. 5317, in camera). 

The [ ] Projects: CBI’s ability to secure a sole-source relationship with [ 
40

 ] illustrates that: Based on actual prices obtained from CBI, PDM and Whessoe, [ 

 ] knew that CB&I and PDM had lower costs than other firms; [ ] knew that with the acquisition of

PDM, CBI dominated the United States market; Without PDM to turn to, [ ] could encourage

competition only by turning to untested, higher-priced alternatives; and [ ] has no choice but to

acquiesce to CBI’s demand that [ ] work exclusively with CBI. In 2001 [ ] analyzed the

competitive environment post-acquisition, and concluded that since the acquisition of PDM, [ 

 .”] (CX 693 at [ ] 01 02666-277) (emphasis supplied). Using a model

that is, inMr. Scorsone’s words, “very, veryaccurate,”[ ] determined that Whessoe’s prices were nearly

double that of CB&I and PDM. (RX 157 at [ ] 02 004 in camera; Scorsone, Tr. 4996). Now,

after the acquisition, despite the fact that CB&I could raise its prices more than [ ]% before Whessoe

becomes competitive, (RX 157 at [ ] 02 004 in camera), [ ] has decided to negotiate for solesource agreements with CB&I for its three pending LNG import terminal projects in the United States.

(Glenn, Tr. 4180). Thus, two current customers, [ ] and [ ], both of which know about

thealleged entrants have chosento stick withCB&I, despite aninevitably higher price thantheywould have

received when PDM was around.

The Dynegy Project: The LNGproject for Dynegy illustrates two important themes of

this case. (1) CBI recognizes that with the elimination of PDM as its closest competitor and the inability

of other firms to replace PDM as a price constraint, CBI will attempt to leverage its market power and

force customers to accept CBI’sterms and forego competitive bidding. (2) If a customer balks, CBI will

walk awayand leave the customerto dealwithhigher-priced competitors. The undisputed facts in this case

are that in2001, afterthe merger, (i) CB&I refused to bid on the Dynegy project if Dynegy “competitively

bid the LNG tanks” (CX 518 at 1); and (ii) the customer
41

is still concerned that the remaining foreign competitors cannot give it a “competitive price.” (Price, Tr.

635) 

* * * * *

Insum, any one ofthese undisputed actsofactualor attempted collusionor price/margin increases,

as Von Kalinowski says, “cements” Complaint Counsel’s case. Complaint Counsel could not find a

reported case withso many instances ofsuchpost-acquisitionconduct. Against the backdrop of over five

decades of divestiture orders from this Commission and federal courts onfar less evidence that what has

beenproven here, the answerforthis Tribunalis clear:This Tribunalshould order divestiture under Section

11(b) of the Clayton Act.

IV. RESPONDENT’S “EXITING ASSETS” DEFENSE FAILS AS A MATTER OF LAW.

Respondents’ last straw is their so-called “exiting asset” defense. They claim that absent the

acquisition, PDM’s EC Divisionmayhave ceased operating in the relevant markets, and thusthis Tribunal

should ignore all the other evidence in the case. This so-called defense is not based on any accepted law

but rather upon an 1986 article: Kwoka & Warren-Boulton, Efficiencies, Failing Firms and

Alternativesto Merger: a Policy Synthesis, 31 AntitrustBull. 431 (1986). If there were such a defense

under the law – and there is not – the “burden of proof” would be “undoubtedly on [Respondents] to

establish any such defense.” Olin Corp., 986 F.2d at 1307. 

But the Commissionhas rejected this defense. Id. Moreover, this case does not qualify evenfor

Kwoka’s proposed defense. By way of background, the only defense like this one that has been

recognized by any court or the Merger Guidelines is the “failing firm” or “failing division” defense. That

defense, clearly setforthinthe Merger Guidelinesin§§ 5.1 and 5.2 requires that the entity is (i) actually

failing; (ii) cannot be reorganized in bankruptcy; (iii) the respondent has made “unsuccessful, good-faith
 

15

 Although the Merger Guidelines have been revised three times - in 1987, 1992 and 1997 - since the

“exiting assets” defense was proposed, the concept of an exiting assets defense has not been incorporated

into the Guidelines. Instead, the Guidelines defense is based on the established premise that either a failing

firm or a failing division be shown to be in danger of imminent failure. Merger Guidelines, § 5.1-5.2. 

42

efforts to” find other buyers; and (iv) otherwise, the assets would actually “exit the relevant market.” Id.

§ 5.1. Respondents have not attempted to meet any of these tests, nor could they. (See Byers, Tr. 6848,

6899; CX 522 at 3398-3399 (Divisionwas notfailing);Byers, Tr.6799;Scheman,Tr.2931,2940,2967-

2968. (No one else wassolicited, besides CB&I); (Assets would be sold to othersin the market) Byers,

Tr. 6802-6805, 6829; RX 29 at 6327-6328). Instead, they claim to rely on the Kwoka Antitrust Bulletin

article and simply argue that PDM had committed to selling the division, so that’s enough. But it isn’t as

a matter of law.

First, inthe only case inwhichtheCommissionaddressed this proposed defense, the Commission

specifically rejected it. Olin Corporation, 113 F.T.C. 400, 618 (1990) (“In short, the facts would not

support the description of the proposed defense, evenifwe adopted the defense, and we decline to do so

in this case.”); See also Warner Communications at 1164 (The court “reject[ed] the argument” that

Polygram“intendsto leave the distributionmarket due to economic necessity”). There is no reasonforthis

Court to depart fromestablished precedent inthis case.15 No court has accepted the defense. It is simply,

as the Commission put in Olin, “novel.” Olin Corp., 113 F.T.C. at 618.

Even if this Tribunal refused to follow the law and create a new one (which we sincerely doubt it

would do), Respondents’ argument muststillfail, asit did in Olin, for the simple reason that Respondents

cannot establish either of Kwoka’s two proposed requirements for such a defense: (i) that the company

made anexhaustive effort to sellthe assets to othersinthe market; and (ii) absent the acquisition, the assets

would actually exit the relevant market.
 

16

 In fact, the fact that CB&I was willing to pay a premium is closely related to the anticompetitive

effects of the acquisition. Since Respondents did not even argue that the acquisition had generated economic

efficiencies, the logical conclusion is that the premium price is directly related to an increase in CB&I’s

market power. See Areeda at ¶ 954e (“The acquirer’s higher offer may reflect the value to it of forestalling

the competition that the preferred merger may produce”); Glenn,Tr. 4262 (Glenn admitted that PDM was

worth more to CB&I than to others).

43

One of the key requirements of Kwoka’s proposed exiting assets defense, as with the failing

division defense, is thatRespondents establishthatCB&I is “the only available purchaser” for PDM’s EC

and Water Divisions and that theyhave conducted an“exhaustive”searchfor alternative buyers. See Olin,

986 F.2d at 1307 (FMC failed to show“evidencethatFMC’s management had conducted anexhaustive

effort to sell” the assets) (Emphasis added); Citizen Publishing Co. v. United States, 394 U.S. 131, 138

(1969). Respondents cannot meet eitherrequirement. Glenn admitted that PDM could have sold the EC

and Water divisions to “any number of competitors.” (Glenn, Tr. 4262) Scheman, the Tanner employee

who wastasked to sellthe divisions,testifiedthatonce CB&I agreed to be a “preemptive buyer...we didn’t

go down the road of calling other people.” (Scheman, Tr. 2931, 2939-40) The reason they only went

to CB&I was, as Glenn testified, PDM was worth more to them than to anyone else. (Glenn, Tr. 4262;

Scheman, Tr. 2967-68 (“It was unlikely that someone could match [CB&I’s] price...because any other

buyer would have to compete with CBI”)). 

CB&I was the first company that PDM contacted after it had made the decision to sell the

divisions, and quicklymade what PDM considered to be a “pre-emptive”offerso attractive that PDM had

no interest in finding any other potential purchasers. (Scheman, Tr. 2931, 2939-40) Tanner & Co.,

PDM’s investment banker, then advised PDM that no other transaction would generate this value, since

alternative buyers, which would face continued tough competition from CB&I, would unlikely pay a

premiumprice forthe EC division.16 Although PDM recognized that other companies would be interested
 

17

 Respondents’ claim that it was enough to send out a press release is also simply insufficient as a matter

of law. FTC v. Harbour Group Investments, L.P., No. 90-2525, 1990 WL 198819, at *3 (D. D.C. Nov.

19, 1990) (Merely sending “offering materials” and “brochures” and “exploratory phone calls” was

insufficient to establish the defense); Olin, 986 F.2d at 1307 (Rejecting defense in part because FMC’s

management had not “conducted an exhaustive effort to sell” the assets”).

44

in the EC division, PDM therefore did not make an active attempt to examine the level of interest from

companies other than CB&I. 

Whereas Tanner contacted twenty-five prospective buyers for another division of PDM, it

contacted no one for the EC Division. Instead, PDM’s CEO simply called up CB&I’s CEO, and they

made the deal that would give both the most value. Indeed, PDM even rebuffed expressions of interest

from at least one prospective purchaser, Matrix. (Vetal, Tr. 418-423) Byers admitted on crossexaminationthat other companies would have been interested in buying the divisions, and yet he has never

seen any proof that anyone else was ever contacted. (Byers, Tr. 6799, 6858, 6806-6812; RX 29 at 5

(Even as of closing, “few potential buyers,” and “some competitors might be interested”in buying the EC

division). Even PDM’s CEO promised the Board that he would contact other purchasers if the CB&I deal

fellthrough. (Byers, Tr. 6864; CX 1590 at 6065) They just never did. The short answer as to why CB&I

was the only one canvassed was PDM’s desire to get more money; they had other options. (Byers, Tr.

6796) Quite clearly, therefore, PDM has not made a “clear showing” that it “undertook a well conceived

and thorough canvas of the industry such as to ferret out viable alternative partners.” United States v.

Pabst Brewing Co., 296 F. Supp. 994, 1002 (E.D. Wisc. 1969), quoted in Areeda at ¶ 954d (“Failure

evento inquire of suchobvious candidates as competitors...presumptively indicatesthat the searchhas not

been diligent”).17 

The second requirement for Kwoka’s novel defense is that the assets are actually exiting the

market. Courts and the Commission have made it quite clear, however, that simply wanting to exit
45

isn’t enough to trigger this requirement, and that is all Respondents really claim here. See, e.g., U.S. v.

Greater Buffalo Press, Inc., 402 U.S. 549, 555 (1971) (Eventhough “owners wished to sell,”defendant

stillhad to prove that “there was no other prospective purchaserforit”); U.S. v.Phillips Petroleum Co.,

367 F. Supp. 1226, 1260 (C.D. Cal. 1973) (Desire by management to exit the business does notsatisfy

the defense); U.S. v. Blue Bell,Inc.,395 F. Supp. 538 (M.D. Tenn. 1975) (Company’sintentionto divest

itself of its businessisimmaterial); See Olin v. FTC, 986 F. 2d at 1307 (“[T]he firstfinding- that the assets

would not be exiting the relevant market...is sufficient to sustain the Commission’s ruling that Olin did not

establish an ‘exiting assets’ defense”). 

Respondents’ argument, however, is that if the acquisition had not occurred, Byers would have

recommended to his Board that they liquidate the assets. But this is irrelevant for two reasons. First,

Byers had no authority to make such a decision and never asked the board to consider it. (Byers, Tr.

6797-98; 6815-16) It is thus pure speculation to assume that the Board would have made such a decision.

Second, if Byers had convinced the Board to liquidate the EC division, his plan was to sell the current

contracts, the plant, and the engineering and intellectual propertyassetsto another competitor who would

carry out the current business. (Byers, Tr. 6802-04; RX 29 at 5) In short, if CB&I had not purchased

PDM, under Byers’ plan, some company other than CB&I (such as Nooter or Pasadena Tank) would

be building Cove Point as we speak! Id. In other words, the assets would not “exit” the market. Olin,

986 F.2d at 1307 (Commissionwas correct inrejecting defense because “assets would not be exiting the

relevant market”). 

There canbe no doubt, therefore, that the sale ofthe ofPDM’s EC division, evenina “liquidation,”

to one or more purchasers whose abilityto compete in the relevant markets would be improved would be

far preferable, froma competitive standpoint, than a transaction that solidifies CB&I’s market leadership
 

18

 Even if the Commission were of the opinion that it could choose a different remedy than it has chosen

under Section 11(b) for over five decades (e.g., something less than divestiture), it would seem that this case

– which has facts far more egregious than dozens of prior reported cases – is not the one for which to create

such an exception. 

46

and puts them in the positionto be the single dominant firmwhichcan “win” every job it wants. (CX 1731

at 44); see Areeda at ¶ 952b (“[E]xit might be preferable on competitive grounds to acquisition by an

alreadydominant firm because without such acquisition small rivals may have a better opportunityto pick

up the failing firm’s customers or resources”). Accordingly, this Tribunal should reject Respondents’

attempted defense, which is not supported in law.

V. DIVESTITUREIS REQUIRED TO RESTORETHE COMPETITION ELIMINATED

BY CB&I’S ACQUISITION OF PDM.

During the Hearing, Complaint Counsel presented substantialevidence that the merger of PDM’s

Water and EC Divisions with Chicago Bridge & Ironmaylessencompetitioninthe relevant markets:e.g.,

evidence of high concentration, attempted and actual collusion, higher post-merger prices and margins –

any ofwhichevidence independently warrants a liabilityfindingagainstRespondents. Section 11(b) states:

“If upon such hearing the Commission...shall be of the opinion that any of the provisions

of [Section 7] have been or are being violated, it shall . . . issue and cause to be served

on such person an order requiring such person to cease and desist from such violations,

and divest itself ofthe . . . assets, held . . . in the manner and within the time fixed by said

order.” 15 U.S.C. § 21(b) (Emphasis added). 

 

Administrative Law Judge Hyun explained Congress’ mandate when he stated without

equivocation: “It is axiomatic that the normal remedy in Section 7 cases is the divestiture of what was

acquired unlawfully. Indeed, divestiture is the remedyspecified inSection11(b) of the amended Clayton

Act.” Olin Corp., 113 FTC at 584.18 Indeed, the U.S. Supreme Court made it clear that Congress

meant what it said in Section 11(b). 
 

19

 Respondents would like this Tribunal to rewrite the words “shall...divest” to “divest only if Complaint

Counsel proves that it’s the only remaining option.” This is against the “ancient and sound rule of construction

that each word in a statute should, if possible, be given effect.” Crandon v. U. S., 494 U.S. 152, 171(1990).

The U.S. Supreme Court has cautioned that courts should not rewrite statutes. See Ernst & Ernst v.

Hochfelder, 425 U.S. 185, 197-201 (1976); Badaracco v. Commissioner, 464 U.S. 386, 398 (1984) ("Courts

are not authorized to rewrite a statute because they might deem its effects susceptible of improvement.").

In similar contexts, the Court has found “shall” to mean mandatory. Escondido Mut. Water Co. v. La Jolla

Indians, 466 U.S. 765, 772 (1984). Certainly, in the context of the legislative history of the Clayton Act, it

seems illogical to assume that Congress looked upon divestiture as some kind of last resort to be used

sparingly, as Respondents suggest. 

47

“In§ 11 ofthe Act, Congress directed the FTC to issue orders requiring that a violator of

§ 7 ‘cease and desistfromthe violation,’ and, specifically, that the violator ‘divest itself of

the [assets] held’ in violation of the Act. ... In the context of construing the FTC’s

authority to issue such...orders, this Court – speaking through Justice McReynolds, who

had served as President Wilson's chiefantitrust enforcement officer at the time the Clayton

Act was framed – had no difficultyfinding...: ‘The Commission’s duty was to prevent the

continuance of this unlawful action by anorder directing that it cease and desist therefrom

and divest itself of what it had no right to hold.’” 

California v. Am. Stores, 495 U.S. at 284-85, n.11, (quoting FTC v. Western Meat Co., 272 U.S. 554,

559 (1926)). This “duty” to order divestiture of what CB&I had wrongfully acquired is clear.

Respondents have offered no precedent for any other remedy.19

In their previous briefs and at closing, Respondents failed to mention any of the more than five

decades of precedent under the Clayton Act, nor did they even mention the governing provision of the

Clayton Act, § 11(b). Instead, Respondents claimed at closing that the Microsoft case governed this

merger case and held that divestiture wassome kind of extreme, “draconian” remedy. U. S. v. Microsoft,

253 F.3d 34 (D.C. Cir. 2001). Counsel made it clear to this Tribunal that “the divestiture cases, authority

relied on in the Microsoft case are [Clayton Act] Section 7 cases. It’s the same.” (Leon, Tr. 8314) Not

true.

Microsoft was not a merger case, and yet, like Respondents here, the Antitrust Division in

Microsoft tried to equate that monopolization case to a merger case. The D.C. Circuit rejected this
 

20

 See, e.g, Olin, 113 F.T.C. at 619 (Order to divest relevant product as well as a corollary one as well);

Crown Zellerbach Corp., 54 F.T.C. 769, 808 (1957) (Order to restore whatever assets “as may be

necessary to restore St. Helens Pulp & Paper Co. as a competitive entity in the paper trade, as organized and

in substantially the basic operating form it existed at or around the time of the acquisition”); Fruehauf Trailer

Co., 67 F.T.C. 878, 939 (1965) (Order to divest “all assets of its Strick Trailers Division and such other assets

48

analogy and chastised the plaintiffs:

“By and large, cases upon which plaintiffs rely in arguing for the split of Microsoft have

involved the dissolution of entities formed by mergers and acquisitions. On the contrary,

the Supreme Court has clarified that divestiture ‘has traditionally been the remedy for

Sherman Act violations whose heart is intercorporate combination and control,’ and that

‘complete divestiture is particularly appropriatewhere asset orstock acquisitions

violate the antitrust laws.’” Microsoft, 253 F.3d at 105 (Emphasis added) (Citations

omitted). 

Asthe Microsoft Court recognized, merger cases are different. Under both the ClaytonAct and

Supreme Court law, divestiture is the proper remedy for illegal mergers. 15 U.S.C. § 21; Du Pont, 366

U.S. at 326-27; Greater Buffalo Press, 402 U.S. at 556; Ford Motor Co. v. U. S., 405 U.S. 562, 573

(1972). The Supreme Court has noted that “[c]omplete divestiture is particularly appropriate where asset

or stock acquisitions violate the antitrust laws.” Ford Motor Co., 405 U.S. at 573. Moreover, as

explained below (Section V.A.), Section 11(b) of the Clayton Act grants the Commission a specific

mandate to order divestiture of assets when a violation of Section 7 is found. Inaddition, Section5(b) of

the FTC Act expressly authorizes the Commission to award any further relief that would restore

competition. And the Commissionhas determined that this authorityallows it to order “broad divestiture”

including divestiture of assets outside of the relevant product market “in order to increase the likelihood of

a restoration of competition.” Olin, 113 F.T.C. at 619.

There is nothing novelinthe remedysought byComplaint Counsel. The Commission has ordered,

and the Commission’sCompliance Divisionhasimplemented and enforced, divestiture ofintegrated assets

inconsummatedmerger cases many, many times over the last five decades ofthe amendedClaytonAct.20
as may be necessary to restore The Strick Company and Strick Plastics Corporation as a going concern and

effective competitor in all the lines of commerce in which it was engaged immediately prior to its acquisition

by respondent”); Ekco Products Co., 65 F.T.C. 1163, 1229 (1964), aff'd 347 F.2d 745 (7th Cir. 1965) (Order

to divest “all other assets as may be necessary to reconstitute McClintock Manufacturing Company as a going

concern and effective competitor...”).

49

Contrary to Respondents’ assertions, testifying customers, competitors and company documents

demonstrate that divestiture is the only relief that has any chance of restoring competition to premerger

levels. In short, the appropriate remedy is quite simple: what was bought from PDM, including the EC and

Water Divisions, their engineers, intellectual property, fabrication plants and ongoing business must be

restored and divested. The resulting company can then be sold to another company that has the capital

and wherewithal to make the restored PDM the competitor it was before the merger.

A. UnderControlling Law, Divestiture Is RequiredIf a Section7 ViolationIs Found.

Section 11(b) of the Clayton Act confers onthe Commissionthe authority to enforce compliance

withSection 7 of the Act and requires an order to “divest” once a violation is found. 15 U.S.C. § 21(b).

Section 5 of the FTC Act gives the Commissionadditionalinjunctive authority and responsibility to frame

additional orders to ensure that competition is restored. 15 U.S.C. § 45(b).

If this Tribunal finds that Respondents have violated Clayton Act § 7, this Tribunal must issue an

order to undo the anticompetitive acquisition and requireRespondentsto divest the fruits of their unlawful

acquisition. The U.S. Supreme Court has held that divestiture is “authorized, indeed required” upon

showing that a consummated acquisition violates Section 7, to ensure that “those who violate the Act may

not reap the benefits of their violations and avoid an undoing of their unlawful project on the plea of

hardship and inconvenience.” Du Pont, 366 U.S. at 348; Greater Buffalo Press, 402 U.S. at 556

(“Divestiture performs severalfunctions, the foremost being the liquidation of the illegally acquired market

power.”);FordMotorCo., 405 U.S. at 573 (“Complete divestiture is particularly appropriatewhereasset
50

orstock acquisitions violate the antitrust laws.”). “Divestiture is a start towards restoring the pre-acquisition

situation,” Id. at 573, and is the only relief /in Section 7 cases that can “eliminate the anticompetitive

consequences” of the acquisition. Id. at 574.

Following the Supreme Court, lower courts have similarly held that divestiture isthe standard relief

in consummated mergers under Section 7. “The very words of § 7 suggest that an undoing of the

acquisition is a natural remedy . . . . It should always be in the forefront of a court’s mind when a

violation of § 7 has beenfound.” Ash GroveCement Co. v. FTC, 577 F.2d 1368, 1380 (9th Cir. 1978)

(emphasis added); see also Olin, 113 F.T.C. at 584 (“It is axiomatic that the normal remedy in Section

7 cases is the divestiture of what was acquired unlawfully. Indeed, divestiture is the remedy specified in

Section 11(b) of the amended Clayton Act.”); Crown Zellerbach Corp., 54 F.T.C. at 807 (ordering

divestiture, to ensure “the substantialrestoration of the competitive entity destroyed”); United Tote, 768

F. Supp. at 1086;see Seeburg Corp. v. FTC, 425 F.2d 124, 129 (6thCir. 1970);RSRCorp., 88 F.T.C.

800 (1976); American Medical Int’l, 104 F.T.C. at 222-23 (1984); Hosp. Corp. of Am., 106 F.T.C.

at 513.

Absent divestiture, any lesser relief would be a slap on the wrist and is simply not countenanced

bySection11(b). By moving for lesser relief, Respondents are asking this Tribunal to disregard established

precedent on both liability and relief, to limit itselfinthe relief that it may order, and to allow Respondents

to continue to enjoythe benefits of anunlawful acquisition. Should this Tribunal find a § 7 violation, the law

is clear that divestiture is warranted to undo its effects. 

B. In Order to Restore Competition, Divestiture Must Be Complete.

The divestiture ordered in this case should be both complete and broad enough “to restore the

competition that existed before the unlawful acquisition.” Olin, 113 F.T.C. at 619. See B.F. Goodrich
 

21

 See Elzinga, The Antimerger Law: Pyrrhic Victories, 12 J. Law & Econ. 43, 55 (1969) (“In practice,

the results of partial divestitures have often been so defective as to indicate that this sort of relief order should

be avoided whenever possible.”); Robert Rogowsky, The Economic Effectiveness of Section 7 Relief, 31

Antitrust Bull. 187, 195 (1986) (Same). 

 

22

 Timothy Muris, Antitrust Enforcement at the Federal Trade Commission: In a Word – Continuity,

Remarks at the American Bar Association, Antitrust Section Annual Meeting, at 7 (Aug. 7, 2001) (available

at http://www.ftc.gov/speeches/muris/murisaba.htm).

 

23

 In 1999, the Commission released a Divestiture Study, which analyzed all Commission-ordered

divestitures over a ten-year period. Based upon its study, the Commission concluded that the preferred relief

is “the divestiture of an on-going business with a customer base [rather than] the divestiture of assets that

facilitate entry.” A Study of the Commission's Divestiture Process, prepared by the staff of the Bureau of

Competition, at 42, (1999) (available at http://www.ftc.gov/os/1999/9908/divestiture.pdf).

51

Co., 110 F.T.C. at n.257 (“In Section 7 cases, the principal purpose ofreliefisto restore competitionto

the state inwhichit existed priorto, and would have continued to exist but for, the illegalmerger”) (citations

omitted). 

Inorder to restore competition, aneffective divestituremustbe complete,thatis,sufficient to create

a viable entitythat operatesindependent ofRespondents. Ford Motor Co., 405 U.S. at 573. Anything

less is a waste of time.21 For divestiture to be successful, a complete divestiture that reestablishes the

acquired firmas a viable competitoris necessary. The Commission “will require a divestiture that will likely

create a viable business entity (rather than the creation of lawyers) to resolve the competitive problems

posed by the merger,”22 where a Section 7 violation has been found. In fact, the Commission has

extensively studied divestitures23 and has determined that the most successful divestitures are those that

create an ongoing, viable entity:

“[T]he divestiture of an entire business (that is, an on-going, stand-alone, autonomous

business, and which may include assets relating to operations inother markets). . . is most

likely to maintain or restore competition in the relevant market.”

Frequently Asked Questions About Merger Consent Order Provisions, at 5 at Q. 16, March 15, 2002

(available at http://www.ftc.gov/bc/mergerfaq.htm). See Rogowskyat 194 (“[W]henfirms already have
 

24

 Of course, the evidence is that such a remedy would not work in any event. (See, e.g., Gill, Tr.

202)(“It would take more than mentoring”); Neary, Tr. 1458 (Mentoring wouldn’t make Howard a “real

viable competitor)). 

52

combined, the highest probability of restoring competition comes from full divestiture”); Elzinga at 45-47

(“Whenever an anticompetitive increment in market power is attained bymerger,structural relief requires

the restoration of the acquired firm”); see Ford, 405 U.S. at 574 (Court ordered Ford to restore Autolite

as a viable, independent competitor and give the new company “at least a foothold in the lucrative

aftermarket and [to provide the new company] an incentive to compete aggressively for that market”).

The point is that any order muststrive “to restore the pre-acquisition competitive structure of the market.”

Id. at 576.

Respondents’ only alternative remedy, and one that only relatesto the TVC market, is a mentoring

programtogether withan agreement not to compete. No Commissionor court decisionhas allowed such

a cop out that allows the offender to keep the illegal acquired assets.24 See In the Matter of Diamond

Alkali Co., 72 F.T.C. 700, 744-45 (1967) (Rejecting Respondents' offer to mentor another potential

competitor); United Tote, 768 F. Supp. at 1086 (Finding that divestiture is proper and that respondents

presented “no reasonable alternatives to the Court” other than retaining the assets from the proscribed

acquisition). 

Moreover, an effective divestiture must be sufficiently broad to ensure that an acquirer can be a

viable competitor. “The relief which can be afforded under these statutes cannot be limited to the

restorationofthe status quo ante.” Ford Motor Co., 405 U.S. at 573 n.8; accord, Hospital Corp., 807

F.2d at 1393 (“[T]he Commissionhas a broad discretion, akin to that of a court of equity, indeciding what

relief is necessary to cure a violation of law and ensure against its repetition.”). In prior cases, the

Commission “has ordered broad divestiture in order to increase the likelihood of a restoration of
53

competition.” Olin, 113 F.T.C. at 619. 

To “ensure that the package of assets divested is sufficient to give its acquirer a real chance at

competitive success,”divestituremust be broad. Id. at 619 InOlin, the Commissionordered respondents

to divest a facility that manufactured the relevant product, isocyanurate (ISOS) and a product outside the

relevant market, cyanuric acid (CA). As is the case with PDM’s EC and Water Divisions, the two

operations inOlinwereintertwined,thus, the Commission concluded that “the CA facility must be divested

together with a related ISOS facility in order to ensure the viability of the divested entity as an ISOS

producer.” Olin Corp, 986 F.2d at 1307 (emphasis added). “Anything less [would] be a divestiture in

name only and would” not restore competition. Olin, 113 F.T.C. at 585. Similarly, the Commission in

Ekco Products found that the eliminationof animportant competitor would not be cured bythe divestiture

of the acquired assets, and that a broader divestiture was warranted:

“The 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 ofthe acquisition; inaddition, . . . the Commissioncould 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. at 1217. 

Inshort, a complete and broad divestiture isthe appropriate remedyto successfullyrestore aviable

competitor to the marketplace. Anything less will be ineffective, and should not be considered by this

Tribunal.

C. There Is Substantial Evidence in the Record to Guide the Tribunal in Ordering

Divestiture to Remedy the Effects of the Acquisition if a Violation Is Found.

Respondents erroneously assert that Complaint Counsel hassome burdento showthat divestiture

is appropriate here and to disprove that the mentoring remedy offered by Respondents would be less

desirable. As explained above, and as expressed by Section 11(b) of the Clayton Act, Complaint Counsel
54

has no such burden. Nevertheless,Respondents are wrong onthe factual record as well. There is ample

evidence inthe record establishing the need for complete divestiture to remedythe effects ofthe acquisition

and how that divestiture must be implemented in order to reestablish two independent, viable and

competitive entities and to assure that relief is effective in restoring competition.

Severalwitnessestestifiedasto the desirabilityofComplaint Counsel’s proposed remedy. (Neary,

Tr. 1489, 1502) (Reestablishing PDM would give his company the “competition” they’re “looking for”);

CX 370 at 89 (Britton, Dep.) (better to have competition); (Simpson, Tr. 3606-09 (“PDM EC was as

strong a competitor as it was because it possessed certain tangible and intangible assets. For a

reconstituted firm to be as strong a competitor, it, too, would have to possess similar assets like the

fabrication plants..., its work force, its engineering staff and its intangible assets, such as its learning by

doing, enabled it to compete as a very strong competitor in this marketplace.”) In short, as Dr. Simpson

testified, the remedywould “restore the competitionthat existed priorto the acquisition.” (Id. at 3608-09)

This is exactly what the law requires. Olin, 113 F.T.C. at 619.

When asked what impact such a divestiture would have on his company, Mr. Glenn, the CB&I

CEO surprisingly said very little: he stated only that he would like the Court to take into consideration the

fact that many ofthe company’scontractshave non-assignabilityclauses and keyemployee provisions, that

CB&I is too small today to qualify for some unspecified projects, and that CB&I employees work on a

number of projects simultaneously. (Glenn, Tr. 4168-69). None of the items noted by Mr. Glenn is an

obstacle to restoring competition through a complete divestiture.

As described above in Section III, Complaint Counsel has introduced substantial evidence, both

inthe formofdocuments and witnesstestimony, as to (i) the intense competitionthat existed inthe relevant

markets when there was an independent PDM and (ii) actualevidence of anticompetitive effects from the
55

acquisition in the form of higher prices and margins, as well as evidence of actual or attempted collusion.

 Many witnessestestified that the eliminationofPDM as anindependent competitor raises concerns about

competition. (See e.g., Neary, Tr. 1444, 1451; Hall, Tr. 1830-31;Kistenmacher,Tr. 878). The evidence

clearly supportsthe need forComplaint Counsel’s proposed remedyto restore competition in the relevant

markets.

The record in this proceeding gives substantial support for an effective divestiture remedy in this

matter. There is substantial evidence in the record as to the structure, composition, and competitive viability

of PDM and CB&I premerger, the precise PDM assets and personnel acquired by CB&I, and the

disposition of those assets and personnel. (See CX 385 at 25 (listing PDM EC’s salaried and hourly

employee headcount);CX385at21-23 (listingPDMEC’sfacilitiesand equipment);CX 134 (organization

chart for PDM EC); CX 133 (organization chart for PDM Water); and CX 328-339 (Asset purchase

agreement, listing all assets ofthe PDM EC and Water Divisions purchased byCB&I, including all owned

realproperty, tangible personalproperty, inventories, contract rights, accountsreceivables, and intellectual

property)). This Tribunal, the Commission, and ultimately the Compliance Division can use this evidence

as a guide for recreating by divestiture as closely as possible the pre-merger competitive environment.

In Order for Divestiture to Be Effective, CB&I Must Assign Contracts to the Divested

Entity. 

The record is clear that CB&I must be ordered to secure customer consent to assign customer

contracts to the divested entity. Mr. Byers conceded that PDM was fully prepared to go out and gain

consents from its customers to allow the sale ofits contract backlogto third partiesfor completion, should

PDM have decided to liquidate the ECdivision. (Byers, Tr. 6804-6805). CB&I was obviously successful

inconvincingcustomersto assign PDM contractsto itself, as Respondents placed no evidence inthe record
 

25

 Moreover, Mr. Glenn testified that his company is gaining over $ 1.5 billion per year in new business,

CX 1731 at 16, and it appears that CB&I has cornered six new LNG projects. (Glenn, Tr. 4148, 4234, 4396-

99). Considering that there were only nine projects during the past decade, there appears to be enough to help

PDM become competitive again.

 

26

 Having sufficient size to provide bonding is also a factor affecting viability in the thermal vacuum

chamber market. Mr. Gill testified that his company, Howard Fabrication, could not effectively compete in

the thermal vacuum chamber market because it was not large enough to purchase bonds for thermal vacuum

chamber projects. (Gill, Tr. 200-01, 234).

56

of any customers going elsewhere to have their contracts completed bythird parties.25 Moreover, to make

sure that the new entity has the reputation, experience and sufficient business base to be a viable

competitor, CB&I’s existing backlog of work at the time of the divestiture must be apportioned between

CB&I and the divested entity.

Divestiture Must Assure that Both CB&I and the Acquirer of the Divested Entity 

Have a Sufficient Revenue Base and Scale to Compete for Large Projects.

The Commission must approve boththe manner ofthe divestiture and the acquirer of the divested

entity to assure that it will have a sufficient revenue base and scale of operations to compete for large

projects. The record shows that an adequate revenue base is a critical component to competing,

particularly inthe LNGtank and LNG terminal markets.26 (Izzo, Tr. 6511-12; CX 891 at 46-47 (Glenn,

Dep.); Izzo, Tr. 6485-86; Bryngelson, Tr. 6154-55). A large revenue base enhances an LNG facility

constructor’s abilityto offer the financial guarantees necessary to win LNGcontracts. (CX 891 at 43, 47

(Glenn, Dep.); Izzo, Tr. 6511-12). LNG customers prefer to contract with a company that has a large

asset base. (Bryngelson, Tr. 6154-55).

A Divestiture Must Include the Assets of both the PDM EC and Water Divisions. 

To restore competition, the divestiture order must include all of the former PDM EC and Water

assets and personnel. The same personnel, equipment, and fabrication facilities are used in the construction
57

of the products of both groups. (Rano, Tr. 5894, 5898). Respondents concede that an effective

divestiture would need to include assets necessaryto other types of industrial storage tanks outside of the

relevant market:

“[I]f you were only to spin off some personnel and assets to make products in these

markets, that company would wilt like a rose left out too long. There is not enough

business. So, you would have to give it all this other stuff to make flat bottom tanks, to

make gravel tanks, to make all kinds of other stuff. You would have to give it enough

personnelso that everybody would have the expertise to do every kind of tank.” (Leon,

Tr. 8311-12)

We agree. There is substantial evidence in the record as to the close interrelationship between

PDM EC and PDM Water, and the necessity of divesting enough assets to re-create the combined

divisions forthe resultingentityto be competitively viable. PDM EC and PDM Water routinely shared field

erection personnel, fabrication facilities, and field erection equipment. (Scorsone, Tr. 4779-80; CX 552

at 45-48 (Braden, Dep.)); (Byers, Tr. 6780 (Because the two divisions shared humanresources,services,

and physical plant, “[i]t was not practical to split them); (Scheman, Tr. 6922-23; CX 525 at 0406);

(Simpson, Tr. 3607 (Must retain shared operations to achieve economies of scope)).

In Order to Be Successful, a Divestiture Must Include PDM’s Fabrication Facilities. 

The divested entitymust include PDM’sfabricationfacilities. In his expert testimony, Dr. Simpson

testified that a divested entity would need the fabrication facilitiesinorder to replace PDM. (Simpson, Tr.

3155-56). The former PDM EC and Water Divisions possessed three fabrication facilities located in

Provo, Utah; Clive, Iowa; and Warren, Pennsylvania. Possessing multiple fabrication facilities is

advantageous because it allows a competitor to rationalize its freight costs. (Vetal, Tr. 428, 432-33). All

three of PDM’s former fabrication facilities must be divested.
58

An Effective Divestiture Must Include the Merged Company’s Intangible Assets

Including Technology and Know-How.

In order for a divestiture order to be effective, Respondents must divest all of the intellectual

property, technology and know-howand otherintangible assetsrelated to the relevant products, including

the PDM name,rightsto whichare underthe collective controlofRespondents. Dr. Simpson testified that

restorationof competitionrequires divestiture of intangible as well astangible assets. (Simpson, Tr. 3608)

(Intangible assets are required to “offer customersthe best dealrelating to dimensions of competition such

as price, quality, timeliness of completion, reputation and safety).

Mr. Cutts, a vice president of ATV, a company repeatedly referenced by Respondents as a

potentialreplacement for PDM inthe markets at issue, testified that to compete as a major competitor, like

PDM, ATV would need:

“their customer base, a list of all their customers, all their bids, everyone they’ve bid to in

the last ten years. Second, their technical specifications associated with cryogenic LNG

applications. Their welding systems associated with certain cryogenic applications. Their

name, so I don’t have to spend ten years building our name and fighting everybody in the

industry who says things that aren’t true about us...., purchasing standards, design

standards, calculations, drafting standards, vendor list, those – and there’s other[s]....”

(Cutts, Tr. 2372-73). Mr. Cutts also testified that they would need marketing, advertising and manpower

assets as well. (Cutts, Tr. 2382). 

In Order to Be Effective, the Divestiture Will Need a Trustee and the Enforcement

Efforts of the Compliance Division. 

The divestiture will require the appointment of a monitor trustee to oversee its effective

implementation. (Simpson, Tr. 5715). See CaseyTriggs, FTC Divestiture Policy, 17 Antitrust 75,76(Fall

2002). The Commission’s specialized Compliance Division, whose purpose isto oversee and implement

Commissiondivestiture orders, willbe able to work withthe trustee to ensure a restorationof competition.
59

The Commission ultimately should approve any purchaser of the divested entity, ensuring that the parent

will have sufficient financing to operate the divested assets and maintain their competitive viability in the

markets at issue. 

In sum, the Clayton Act and established Supreme Court precedent unequivocally state that

divestiture is warranted and appropriate upon showing that Respondents have violated Section 7.

Eachone ofthe dozens ofpieces of evidence presented byComplaint Counselindependentlymandate that

CB&I return what it has wrongfully acquired to restore competition.

D. The Provisions of Complaint Counsel’s ProposedOrder Are Tailored to Restore

the Competition that Existed Prior to the Acquisition

Complaint Counsel’s proposed Order in this matter is the appropriate remedy for restoring

competition. Within 6 months, Respondents are required to divest all tangible and intangible assets that

CB&I acquired fromPDM as a result ofthe Acquisition, as well as any additions or improvementsto these

assets, to anAcquirer approved bythe Commission. Order, ¶ II.D. These assets include the former PDM

fabricationfacilitieslocated inClive,Iowa; Provo, Utah; and Warren, Pennsylvania. Order, ¶ I.U. These

assets also include the Pitt-Des Moines name. Order, ¶ I.U.

Inorder to provide the acquirer with a backlog of work, the Order also requires CB&I to divest

a portion of its customer contracts. Order, ¶ II.C. CB&I is proscribed from divesting only unprofitable

contracts. Order, ¶ II.C.3.a. CB&I is also required to divest contracts that are equitably distributed

among the various types of products thatCB&I (and, priorto the acquisition, PDM) manufacture. Order,

¶ II.C.3.c. Moreover, CB&I is required to divest, to the extent possible, half of its contracts in the relevant

markets alleged in the Complaint. Order, ¶ II.C.3.d. The Order addresses the dilemma surrounding the

feasibility of assigning customer contracts by requiring Respondents to secure the customer approval
60

necessary to transfer such contracts. Order, ¶ II. C. By receiving these contracts, the acquirer will be able

to build a track record immediately upon divestiture in the relevant markets, and have sufficient work in

progress outside the relevant market to sustain the acquirer’s operations.

Paragraph II.E. of the Order requires CB&I to license CB&I’s intellectual property, that is, the

combined intellectual property that resulted fromthe acquisitionofPDM. Order, ¶ II.E. CB&I must also

transfer a portion of its employees and must use whatever means are necessary to accomplish such a

transfer. Order ¶ II.F.

Finally, the Orderincorporates provisions relating to two types of trustees. The first trustee is the

Monitor Trustee, whose responsibility is to ensure that Respondents comply with the terms ofthis Order.

Order, ¶ V. The second trustee is the Divestiture Trustee, who shall be appointed to accomplish the

divestiture, in the event that Respondents fail to divest, in the manner and time as required by the Order.

Order, ¶ VI.

VI. CONCLUSION

Knowing about the antitrustrisk, CB&I took a chance that, by closing its deal and telling the FTC

staff later, the dominance they sought would be theirsto keep. But Congress, through the truth seeking of

a trial, has giventhe “Government a ‘heads-I-win, tails-you-lose’ advantage in this case – especially when

CB&I just couldn’t stop itself from using their dominance to raise prices and margins while this trial

progressed. General Dynamics, 415 U.S. at 1197, n13. Complaint Counsel respectfully suggests that,

under these circumstances, the law now requires this Tribunal to order CB&I to divest all of the assets it

acquired fromPDM, and take other steps necessary to reestablish it as a distinct and separate, viable and

competing business in the relevant markets. A Proposed Order is attached.
61

Dated: February 25, 2003 Respectfully submitted,

_______________________________

J. Robert Robertson

Counsel Supporting the Complaint

Federal Trade Commission

600 Pennsylvania Ave. N.W.

Washington D.C. 20580

(202) 326-2650

CERTIFICATE OF SERVICE

I herebycertifythatIcaused a copyofthe Public VersionofComplaint Counsel’sCorrected Brief

in Support of its Proposed Findings of Fact and Conclusions of Law 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 first-class mail to:

Jeffrey A. Leon

Duane M. Kelley

Winston & Strawn

315 W. Wacker Drive

Chicago, IL 60601-9703

(312) 558-5600
62

CounselforRespondentsChicago Bridge & IronCompany N.V.

and Pitt-Des Moines, Inc.

________________________________________________

April Tabor, Attorney

Dated: February 25, 2003