B. Actual Evidence Of Anticompetitive Conduct Independently Requires A
Finding Of Liability Agaiast Respondents In This Case.

Respondents ignore ail the evidence ofanticompetitive eifects and simply blow it offin a few
paragraphs oftheir bricf, simply charging that “there is not.a shred of evidence...only speculation and
conjectnre” thal there are any anticompetitive effects. (R.Brief at 129-30) This is not tre.
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. As our Post-Trial brief detailed,
evidence of collusive behavior and price/margin increases are abundanily clear from CB&I’s
dealings with Spectrum Astro, TRW, Boeing, Memphis L&G, Cove Point, Linde, and Praxair.

As explained hetow, Respondents’ plea that all the priec increases we budget prices is not
relevant; however, the prices CB&I offered to Cove Point, Spectrum Astro, TRW and CMS are the
actual prices the customer is supposed to pay. In the end, Respondents’ entire case boils down to
this: Tell these customers not to worry about paying millions of dollars above the price that they
would have paid if PDM were still competing — an even higher priced foreign competitor is on the
way. This is not the law. Moreover, the collusion CB&I engaged in with Spectrum Astvo, TRW and
Cove Point cannot be justified by any excuse that Respondents can muster. Such collusion is a per
se offense under Lhe Sherman Act, for which there is no defense (like, “we were only trying to get
the customer a better price”). United States v. Azzurcili Const. Co., 612 F.2d 292, 294 (7" Cir. 1979)
(recognizing bid rigging has been recognized as a per se violation of the Sherman Act).

Respondents, however, raise the exumple of CMS to show that competition is alive and well
in the LNG business. As explained jn the Introduction above, CB&I’s dealings with CMS
demonstrate anticompetitive effecis. [ ] As cxplained in detail at page 41, above, in the
lack of entry section for LNG, CMS accepted « price from CBI for an LNG tank of about |

], CMS couldn’t tell if this price was competitive, so it [

33


due to the business combination in question”). Yet. all that Respondents tried to prove was that
Messrs. Glenn and Scorsonc may think that foreign finms may enter the LNG market, United Stares

v. Falstaff Brewing Corp., 410 U.S, 526; 565-568 (1273) (Discounting defendant's testimony as to

whether lhey would enter a market because “itis in the very nalure of such evidence that in the usual

case it is uot worthy of credit”). But actions speak louder than words here: CBI’s inercased prices
and margins, as well as their collusive conduct, are entirely inconsistent with fear of sufficient entry.

Again, Respondents miscite the law in an attempt to debunk the governing test for entry.
Relying solely on Baker Hughes, Respondents claim that they do not have to show any evidence of
the required three elements of entry." it is no surprise that Respondents can cite Baker Hughes
from 1990 and show that it does not endorse precisely the views set forth in the 1992 Merger
Guidelinest No kidding. Wouldn’titmake more sense to cite the post-1992 cases — especially from
the D.C, Circuit — that are on point and address the Merger Guidelines and appropriate merger
analysis? That is precisely what we did, and Respondents failed to do.‘ And although Respondents
deny that this is the standard now, their Pre-Trial Brief couldn’t have said it better:

“Base of entry is established by evidence of timely, likely and sufficient entry. [Citing
Merger Guidelines as not binding] See generally, Cardinal Health, 12 F. Supp. 2d
at 55. Entry is timely ifit takes place within approximately two years. See Svufy, 903
F.2d at 666. Entry is likely and sufficient if ‘case of cniry in the market is such that
the producers in the market could not long sustain an unjustified price increase.”

"Respondents also claim that “there have been no structural changes in the competitive
landscape which facilitate the exercise of market power.” (R-Bricf at 130 (original in all caps))
But the acquisition combined the #1 and #2 dominant competitors in all the relevant markets.
Respondents then claim that one couldn’t possibly have coordinated effects when there is
“competitive pricing from bidding” of “two to three” firms. (/d.) There is no such competition
here. When CBI went to Howard Fabrication and proposed that they “coordinate on a bid,” they
obviously were not considering any other possible competition.

“it is not appropriate for Respondents to use an “osiich-like tactic of pretending that
potentially dispositive authority against [their] contention docs not exist.” Borowski v. DePuy,
Inc. 850 F.2d 297, 304-05 (7th Cir.1988) (Citation omitted).

19



‘TABLE OF CONTENTS

TABLE GF AUTHORITEES ......-------.-+- 4 dy ee eee eee cette teen ee iv
INIRODUCTION . 2.002 e iter e rescence cece eee I
Respondents Cannot Show That Other Compctition
Is Likely To Compete At Pre-Merger Prices Profitably ..... 0.0.0 cece cee cece ee eee 2
Prov! of Anticompetitive Effects “Cements” Complaint Counsel’s Case ...... 0.6... 5

This Tribunal Should Reject Respondents’ Novel “Exiting Asset”
Defense, Especially When They Cannot Satisfy Any Of Its Elements .............-. 6

Divestiture Is Required Under The Undisputed Facts Of This Case. ...........2.004 6

L EXTRAORDINARILY HIGH CONCENTRATION IN THE
RELEVANT MARKETS DEMONSTRATES ‘THAT THE

ACQUISITION MAY LESSEN COMPETITION SUBSTANTIALLY. ............5 7
Tl. RESPONDENTS FAILED TO REBUT THE PRESUMPTION OF
ANTICOMPETITIVE EFFECTS. ........0.020000000 000 ccc cere ence cee eeeee 13
A The Alleged Entry Is Not “Timely” (Within Two Years). 0.02.00... 000 ee ee 20
B. Entry Cannot Be “Profitable at Pre-Merger Prices.” .- 20.0000 ee ee ee ev eee 21
Entry Cannot Be “Sufficient” To Replace PDM. ......... 0000s cee eee 22
D. None OFRespondents’ Claimed Entrants Arc Sufficient To Restore
Pre-Acquisition Prices At Profitable Levels. ........-.2.-.-----.-.----- 31
E, Respondents” Claims Of Entry Are Insufficient As A Matter Of Law. ........ 3
1. There Ts No Entry In TVCs. .. 2.222222 2 ee eee ee ee eee es 31
2. Respondents ITave No Proof Of Entry In LNG ........ 0.06.00 cece 34
3. ‘There Is No New Entry Into the Market For LPG Tanks. ............ 44

4, There His Been No Entry Into the U.S. LIN/LOX
Tank Market Since the Acquisition ....... 0... cece sete e eres 47


IV. RESPONDENTS’ “EXITING ASSETS” DEFENSE FAILS AS AMATTER OF LAW,

Respondents admit that their so-called “exiting asset” defense is not based on any accepted
law but rather upon barely six pages of an 1986 utile: Kwoka & Warren-Boulton, Efficiencies,
Failing Firms and Alternatives to Merger: a Policy Synthesis, 31 Antitrust Bull. 431 (1986). (R.
Brief at 154). Respondents also admit that, when faced with such a proposed defense, the
Commission “declined” to “adopi[] the defense,” but Respondents nevertheless petition this
Tribunal to “adopt this defense” anyway. (dd. 154, n.29, citing Olin, 113 F.T.C. 400, 618 (1990)
(The “facts would net support the description of the proposed defense, even if we adopled the
defense, and we decline to do so in this case.”)). Thus, the question for this Tribunal is whether it
wishes to ignore (he Commission’s decision in Olin, as well as the Merger Guidetines §§ 5.1, 5.2, and
institute a new defense that the Commission and the Ninth Circuit both called a “novel” defense.
Olin, 986 F.2d at 1307; 113 E.T.C. at G18. We respectfully suggest that it should not do so.

Yet, there’s morc, Respondents want this Tribunal to adopt this novel defense and ignore
its requirements as proposed by Kwoka and Warren-Boulton. Tn their 1986 article, which has never
been adopted by anyone in over 16 years, the authors argue that, at the very least, the respondent must
prove two elements:

* As Judge Ilyun explained in Olin, “the authors would ‘insist, whenever
possible, on alternatives short of merger to achieve particular efficiencies.’”
Olin, 113 FIC w 583, quoting 31 Anlitrust Bull. at 432-433. As the
Commission put it, respondents would have to show that they “conducted an
exhaustive effort to sell” the assets. 113 FTC at 618.

Ld The “key element of such a defense is proof that, without the merger, the
assets owned by the acquired firm would shortly be leaving the market.” (31
Antitrust Bull. at 446).

As tn Olin, Respondents have proven neither element here, and sinec this is an affirmative

defense, it is “undoubtediy” their burden to do 50, Ofin, 986 F.2d at 1307.

62



BE. Contrary To Respondents’ Assertions, FTC Precedent Mandates Divestiture,

Respondents claim that in £kco “the Commission has also recognized that Section 7 does not
Tequire divestiture as the only available remedy.” (R: Brief at 162, citing 65 F.T.C. 1163 (1964),
But that is not what the case decided at all. The issue the Commission confronted was that the
“disappearance” of the assets purchased by Ekco prevented the Commission from doing more than
asimple divestiture. fd. at 1212. Since divestiture of what was acquired was not a practical option
(the assets bal “disappeared”), the Commission heid that Kkeo could be ordered to “reconstitute” one
of the acquired companies as a “going concern” by providing it with all the assets it would need to
“bean effective competitor” in the market—Ekco woult then be ordered to “divest” the reconstituted
entity. fd. at 1228-1229, This remedy, which is far beyond the strict contours of 11(b), hardly
suggests that the Commission would allow a remedy tess than divestiture in that case or in the one
athand. Notably, the Commission also held that if its Order did not do whatever is “practicable” to
restore competition to the state that it would bave bevn in absent the merger, “the government has
won a lawsuit and lost a cause.’” /@. at 1216 (Citation omitted). In short, what the Commission
ordered in Ekeo was not less than divestiture, it was more and il is far broader than the remedy
sought in this case.

Respondents also claim that in Retai? Credit the Commission held that divestiture is not “an
automatic sanction” in merger cases. (R. Brief atl60, citing 92 F.T.C. 1, 123 (1978)) The first
probiem is that the Commission never sail this Adminisirative Law Judge Hyun did! And, again,
Respondents quote this statement out of context. Judge Hyun was trying to decide whether
“complete” versus “partial” divestiture was required under 1t(b), which docs not make such a
distinction. Judge Hyun decided that he could exclude the West Coast offices (among many other

offices) from his proposed divestiture order. Hd, at 163, 1.60. The Commission, however, reversed

73



Respondents fail to mention that the very case they cite rejected Respondents’ argument that
high concentration docs not satisly the prima facie case. For cxample, Baker ITughes states the same
Tule as laler cnunciated in Heinz. United States v. Baker Hughes, dnc., 908 F.2d 981, 982 (D.C. Cir.
1990} (“By showing that a transaction will lead to undue concentration....the government establishes
4 presumption that the transaction wili substantially lessen competition.”}. Because, Complaint
Counsel shows post-acquisition HHT levels wel) above 1,800, the case is ever unless Respondents
“produce evidence” to rebut this legal presumption.

[tis simply irresponsible for Respondents to argue that this case is “legally and factually
similar” to Baker Hugies and thus should have the same outcome. (R. Brief at 14) As the Ninth
Circuit pomted oul to a defendant who tied Lo make this same urgument, “the clearest reason why
Baker Ifughes does not control” in this case “is that the Commission responded to the Company’s
rebuital .. whereas in Beker Hughes, the government did not.” Olin, 986 F, 2d at 13053 None of

the cases cited by Respondents, including Baker /ighes, hold that evidence of high concentration

does not, by itself, establish a prima facie case.*

Notably, in Baker Hughes, unlike the facts in this case, all competitors, including both of
the merging parties were foreign companies that built the products overseas. Baker Hughes, 731
F. Supp. at 4. Moreover, there were already other competitors besides the defendants who had
imporled Lhe products inio the United States. é@. al 10. ‘The court ulso held that the market
shares were unreprescniative because these firms had traded competitive positions frequently
over the years. 44, at 9. The Justice Department, however, never went beyond its prime facie
case and offered no evidence of any anticompetitive effects. /d. at 12.

“Even the Xraft case, on which Respondents rely heavily, is to the cantrary. There, the
court used the Merger Guidetines expressly, found that the State of New York did show that the
combined market share of only 14.52%, which had been declining, still reflected “significant
antitrust concerns,” but in light of the substantial evidence that the products at issue, Grape Nuts
and Shredded Wheat, were not consumers’ first or second choices and that the low market shares,
which were declining, the State simply did not carry the day. New York y. Kraft Gen. Foods, 926
F. Supp. 321, 366 (S.D. N.Y. 1995). Fruchauf Corp. v, FTC, 603 F.2d 345 (2d Cir. 1979) is also
inapposite. Jt involved a vertical merger (the partics did not compete) with resulting market
shares of approximately 5.8% — hardly similar to this case. fd. at 355.

9


a possibility of another purchaser.” (Byers, Tr. 6895) Tn short, we don’t necd to lake counsel’s,
Scheman’s or Byers’ speculation on what the CEO or PDM Board would have done. The final word
on this topic was the documented offer by Mr. McKee to the PDM board “that if the CBI deal fell
through, that PDM would continue its efforts to sell its PDM EC and PDM Water Divisions by
seeking other purchasers.” (Byers, Tr. 6894-95; CX1590)

Respondents’ use of case law is also misleading. Respondents queslion whether it is their
burden to prove this defense. Yet the case they cite, Citizen Publishing, holds unequivocally that the
“burden ofproving that the conditions of the failing company doctrine have been satisfied is on those
who seek refuge under it.” (R. Brief at146, 154; Citizen Publishing Co, v. United States, 394 U.S.
131, 138-39 (1969); Olin, 986 F.2d at 1306-7 (It is Respondents” “burden”).

Respondents also claim that Complaint Counsel’s assertion that under the traditional “failing
firm” defense, PDM FC had ta be on the “brink of insolvency er hankruptey” is “too narrow” a
reading of Citizen Publishing. (R. Brief atl 54, citing Citizen Publishing, 3941S. at 137.) Not true.
Tn that case, the U.S, Supreme Court held that Respondents must prove the compuny’s resvurves are
“so depleted and the prospect of rehabilitation so remote” that it faces “the grave probability of a
business failure.” 394 US at 137, Moreover, Respondents’ suggestion that the Kwoka, Warren-
Boulton article is a permissible interpretation of Citizen Publishing is ridiculous. First, the U.S.
Supreme Court specificaily beld: “We confine the failing company doctrine to ils present namow

scope.” Jd, at 139.* Second, the article itself acknowledges that it proposes a change in current law.

*4 Courts have repeatedly emphasized that the “failing firm” defense has “strict limits”
and is not justified on a showing, as is the case here, that the defendant simply wants to leave the
market. FTC! vy. Warner Communications, Inc., et al, 742 F.2d 1156, 1164 (9" Cir. 1984) (Lhe
defense has “strict limits” and “a conipany's stated intention to leave the market or its financial
weakness docs not in itself justify a merger”); U.S. v. Phillips Petroleum Co., 367 F. Supp. 1226,
1258-59 (C.D. Cal, 1973) (A company’s intention to leave the market is not enough); Greater
Buffalo Press., 402 US. at 555 (1971) (“That test is mct only if two requirements are

68


Respondents cannot rebut the prime facie case. Moreover, the evidence that there have been
anticompetitive effects, such as price inercases (see discussion in Scetion II infra), likewise proves
that any supposed entry has been insufficient as a Yiatter of law. Indeed, unlike PDM, the other
firms that Respondents now rely upon to restore competition have major commercial disadvantages
relative lo CRT, including, variously, higher materia! and construction costs, lack of experience and
track record, higher levels of construction risk, and lower levels of quality and reliability. (See CC¥F
291-419). All ofthese factors make it highly wulikely that the few marginal competitors, who do not
have capabilities that PDM had, will be sufficient to maintain the Icvel of competition and prevent
a price increase by CBI in any of the relevant markets. See Merger Guidelines, § 3.4.

At best, Respondents provided some testimony from third parties that they believed there
were “sufficient” competitors to maintain competition in some of the markels, See, e.g. RFOF
3.381. However, given the lack of experience of Respondents’ witnesses — particularly with respect
to the history of competition between CBI and PDM — that testimony cannot be relied upon to
establish that new competitors will replace PDM. For example, Respondents called Izzo, Eyerman
and Carling, and nol one o fLhem had ever actually participated in a bidding process for any
cryogenic tanks in the United States, Thus, as Izzo admitted, any view he might have as to the
competitiveness of the prices of the foreign firms would be “speculation.” (Izzo, Tr. 6526) In
contrast, Complaint counsel presented several witnesses, all with experience in the purchase of the
relevant products, w ho expressed concern that other companies could not restore the level of
competition that had cxisted between CBJ and PDM, and that the acquisition would reduce
competition and lead to higher prices. (CCFF 710-728). Other witnesses that Respondents promised

could testify on these issues never appeared at trial.


ROM pricing from CBI and POM. TRW plans to award the contract for this TVC in late 2003 and
begin building it in 2004. (Neary, Tr. 1431, 1471-73, 1501). This bidding process is ongoing, and
CBI has already attempted to collude with the only-sther bidder on that project, which by itself
warrants a finding against CBI here.

Respondents argue that “CBI is not a player in the TVC market.” Not true. For example,
Tn August 1998, CBI informed Orbital Sciences: “The CBI - XL team has the strongest experience,
both long term and current, of any large thermal vacuum supplier.” (CX 1220 at CBI-PLO13372).
CBI's business and strategic documents refer to PDM as CBI's “only competitor” for TVC projects.
(CX 212 at CBI-PLO31721; see afso CX 264 at CBI-H006780 (“only real competitor”); CX 265 at
CBi-H007057 (“single USA competitor”). [

] in camera; see also CX 212 at CBI-
PLO3172] {PDM’s strategic alliance was “the only competition for the thermal vacunm systems
market”}), and “our major competition if new work emerges” in TVCs, (CX 1040 at PDM-HOU
010889).

Not only has CBI definitely been a player in the TVC market, its presence had a considerable
impact on prices. Mr. Scully, who was employed by CBI at the time of the merger, testified that
since CBI “came back into the market there was a tendency for the pricing [of TVCs] to go down
because of [CBI's] desire to get back into the market.” (Scully, Tr. 1176). In 2000, a CBI e-mail
from David Lacey, the heal sales representative for TVCs, described customers’ perceptions that

CBI and PDM [ ], in camera), The same



E. Following the Acqnisition, CBI Has Increased Prices and Failed te
Honor PDM’s Prices.

Respondents concede that a “company providing a firm, fixed price is expected to ‘stated up
to their price and do the work for that price." (R. Brief 126). However, folfowing the acquisition,
when customers have asked CBI for a firm price, or to reconfirm a firm price, that PDM had
committed to prior to the acquisition, CBI has provided the customer a higher price than PDM had
previously accepted for the work. CBI's unwillingness to stand up and do the work for the price
aurecd to by PDM prior to the acquisition is au anticompetitive effect of the acquisition.

Thus, when Boeing asked CBL, following the acquisition, to renew the firm fixerl price PDM
had provided to Boging for a TVC, CBI increased the price by [ ] and labeled the price an
“ROM” signifying that CB] would not carmmil to honor even that higher price. (CCFF 1213-16).
When Spectrum Astro asked for an updated bid, CBI told the customer that it had to increase the bid
by over a SI million due ta cost increases. Of course, this was absolutely false: CBI was covertly
increasing its margins from [ }. (CCFF 1151). Shortly after signing the
acquisition letter of intent, PDM provided budget pricing for the Cove Point LNG tank that was
higher than the firm hids CBT and PDM had previously submitted for the tank. CCFF 825. In each
successive pricing round thereafter Respondents further inercased the price and margin of the Cove
Point ING tank. CCFF 825. Accordingly, CBI’s claim that a supplier should stand by its last
competitive bid does not apply to it, ‘That is solely because there is ao competitive force like PDM
to keep it honest.

FE. Critical Luss Theory Confirms (he Anticompetitive Effects of the Acquisition

Respondents’ claim that a “critical loss” analysis shows that CBI would not increase price
after acquiring PM is incorrect. Al the outset, this entire argument is moot. The only purpose of

doing this analysis is to predict whether a company could profitably raise prices in the future. When

38


int'l Distrib. Ctrs., Ine. v. Walsh Trucking, 812 F.2d 786, 792-93 (2d Cir. 1987) and Heuhiein, inc.,
96 F.T.C. 385, 590-591 (1980) in support of their broad sweeping statement, (R.Brief at 9). Again,
Respondents make a grotesque distortion of the holtifugs in those cases.

The court in Gillette stated that, “Although it may take a significant investment of time and
money to build market share, the record clermonsirates that there are new entrants into the fountain
pen market which are able to check increases in price.” Gillette, 828 F.Supp at 85. Respondents
propose that this statement mcans thal the investment of time and moncy are not barriers to entry
under any set of facts. This is plainly incorrect. The Giflette court was specifically addressing Lhe
market for fountain pens, and net making a general holding for every market as Respondents assert,
Furthenmore, the court was not recognizing that any entry was sufficient to rebut a prima facie case,
but only that from entrants “which are able to check increases in price.” Jd. at $5

In nt i Distrib. Cirs., the court reviewed the market for carriage of garments on hangers in
the Pennsylvania Corndor. A Justice Department report on entry into this segment of the trucking
industry noted that, “these capital outlays, though relatively large for the wucking industry, still do
not approach the entry costs into other industries.” Jnt'? Distrib. Ctrs, 812 F.2d at 792. The court
held, “Under the conditions in the market for the carriage of garments on hangers inthe Pennsylvania
Corridor, therefore, NR'1’s market share was not sufficiently significant to give rise te a dangerous
probability that it would monopolize the market.” Jd. at 793.

Respondents also cite Heubiein for the proposition that capital costs arc not barriers to entry,
but the Commission held no such thing. (R. Brief at 9, citing 96 F.T.C. 385 (1980)}. Instead, the
Commission found that “any ‘capital cost’ advantage was highly unlikely to have existed.”

Heublein, 96 F.T.C. at $94, Thus, none of these cases support Respondents’ proposition.

29


Respondents do not disagree, but claim that in a scaled bid environment one might only find
price increases of “less than 5 percent.” (R-Bricf at 136-37) While this theoretical argument is
incorrect (Simpson , Tr. 5764, 3072-3086), even iF prices were only increasing 1-5%, that is an
anticompetitive cffect that must be stopped. Sealed bidding with fewer bidders also facilitates
collusion. &. Posner, Antitrust Law An Economic Perspective 61 (1976). And we have seen that
here in the TRW bidding.

Respondents also incorrectly state that Dr. Simpson assumes that many firms participated in
all of the LNG bids back to 1990. (R.Brief at 137). Respondents miss the point. Dr. Simpson’
probability analysis for the T.NG market shows that customers couldn’t possibly consider that any
other supplier except CBI and PDM were on equal footing competitively, because they never selected
or even approached any other suppliers. (Simpson, Tr. $753}. Respondents also claim that Dr.
Simpson said that “probability theory essentialiy involves flipping coins.” (R.Brief at 137). This is
a cheap shot, While it is true that Dr. Simpson referred to flipping a coin to explain probability
theory, many statistics books do the same. (Simpson, Tr. 3393-4; Wonnacoli, R., and T, Wonnacott,
Introductory Statistics at 93 (4° ed. 1985)). Finaity, Respondents are incorrect that “these companies
entered the market in the past (wo years. (R. Brief at 137). Not one of the foreign firms has been
awarded let alone built a LNG tank in the United States.

+e eee

dn sum, any one of these undisputed acts of actual or attempted collusion or price/margin
increases “cements” Complaint Counsel’s case. Lektro-Vend, 660 F.2d at 276. In the end,
Complaint Counsel could not find a reported case with so may instances of such post-acquisition
conduct, Against the backdrop of vver five decades of divestiture orders from this Commission and

federal courts on far less evidence, it is clear that complete divestiture is warranted here.

6l



a single conlainment LNG tank, Calpine will not build a double or full containment tank. (Izzo, Tr.
6522-23), Mr. Cutts testi ficd that for “smaller applications,” customers will continue to build single
containment tanks, and for larger applications, Mr. Cults docs not “really” know beeausc he does not
“anderstand the FERC regulations,” has not been a “party to any first hand meetings wilh FERC
regulators associated with permitting LNG tanks,” and has not been told by anyone at FERC that
requirements for LNG tanks are going to change in the future. (Cutis, Tr. 2394, 2498-99),

Furthemmore, 4 look at the projects being built confirms, there is no “trend” toward double
or ful] containment tanks in the United States. CBI is in the process of constructing a single-
containment tank at Cove Pomnl, Maryland. CMS Energy chose a single containment tank for the
expansion of its LNG import terminal at Lake Charles, Louisiana. (J. Kelly, Tr. 6260, 6271).
Southem Natural Gas, an affiliate of E] Paso, is planning on building a single containment LNG tank
at Elba Island, Georgia. (Bryngclson, Tr. 6214). Memphis Light Gas & Water will likely build a
single containment tank when it expands its current facility. (Hall, Tr. 1831, 1842).

Ultimately, from Mr. Glenn’s perspective, it does uot matter whether the “trend” is forsingle,
double or full containment tanks. If CBT really had a fear that any such trend would cause significant
foreign cntry and thus dgmaye CBI's business, one would expect that he would tell his investors so
when they ask him specifically what changes there are in the markct. His response to that precise
question was, CBI “can win the work every time teclinically.” (CX 1731 at 44-45). Respondents
produced no records of any kind ftom CBI showing that its markct position has somchow changed
due to some alleged trend towards double or full containment tanks or that there is any real entry in
the LNG business. Thus, it should be assumed that these alleged fears are simply exaggeraled for
litigation purposes. See UAW v. NRLB, 459 F. 2d at 1336 (inference against party who fails to

produce evidence on a point).

39



“Q. Do you have any opinion as to whether breaking up at this point CBT into two
separate companies would be beneficial or harmful to competition in LIN‘LOX?

A. That's an interesting question. To the extent that there was nothing left o[f] either

of the two companies afer any FIC actiorzryes, T think ihat would inhibii -- that

would be bad for Air Products and the industrial gas business in goneral,”” (/d.}
Thus, itis clear that Hilgar somehow believed that we are liquidating both CBI and PDM. Obviously,
ifthere was “nothing left” of CBI and PDM, that would be bad, especialiy since Hilgar also testified
that 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) Without either CBI or PDM, Air Products
would bein a fix —sinec there is no competitive foreign competition. Nothing in Hilgar’s testimony,

however, states that a divestiture — rather than liquidation ~ would be bad.

[ | testimony is not any more supportive of Respondents’ assertion. In the passage
they cite, [ J is asked about [
] That is aii the information[ | is given. [ J answer is that
{ 1 ] is then asked if [
“T¢ ] i camera) This is hardly strang evidence that a divestiture

will, in Respondents’ words, “harm consumers.” [ | said nothing of the sort, The merc assertion
that it might be [“difficult”] is fair — but we don’t want [ ] 0 de it. That is why we havea
professional Compliance Division and a Monitor Trustce. Respondents fail to point out that
[ ] also stated that it would be [
com ], m camera)
Second, Respondents assert that a remedy is unworkable because tt would be difficult to
assign contracts or employees te PDM. (R. Brief at 166} Their sole support for this is the sclf-

serving testimony of Gerald Glenn. Yet, the evidence at Lrial reveals that Respondents dealt with this

81


are well beyond the required proof of mere “‘incipiency” here, and thus an undoing of this illegal
meryer is mandted as a matter aC law.

Respondents Cannot Show That Other Competition Is Likely To
Compete At Pre-Merger Prices Profitably.

Under the jaw, once Complaint Counsel offers evidence of high concentration, it is then
Respondents’ “burden to rebut a prime facie case ot illegality.” Olin Corp. v. PTC, 986 F.2d 1295,
1305 (9" Cir, 1993); FTC v. Libbey, Ine., 211 F. Supp. 2d 34, 51 (D. D.C. 2002) (“The FTC's prima

facie case, which creates a presumption of anti-competitive effects, shifis the burden to the
defendants to produce evidence to rebut that presumption.”). Respondents’ entry story, however,
just doesn’t work.

Respondents seem to believe, erroneously, that they need only prove that other competitors
exist. They are wrong. Complaint Counsel knows that these so-called entrants have been building
cryogenic tanks ¢lsewhere in the world for many years. The exislence of these companies cannot
undo the effects caused by the elimination of PDM when they are not as cost-effective and hence,
not as compelilive as CBI is (and PDM was) in the United States. For decades, CBI and PDM, the
only two low-cost, quality competitors, have dominated the U.S, market, All other companies are
far off the mark im cost, price, and quality.

The law requires more than mere compclition: Respondents must show that so-called
competitors are likely (o compely pro Glably at pre-acquisition prices. U.S. Department of Jusuce
& Federal Trade Commission, /Jorizonral Merger Guidelines § 3.0 (1992, rev'd 1997) (Entry must
be “profitable” at “premerger prices” and “be sufficient to relum market prices to their premerger
levels”); F7Cv. Cardinal Health. Inc., 12 F. Supp. 2434, 58 (D. D.C. 1998) (Following Guidelines).

The fact is that they cannot. For example, no companies besides PDM and CBI could compete


TABLE OF AUTHORITIES

CASES:

Advo, inc. v Philadelphia Newspapers, Inc.,
854 F. Supp. 367 (E.D, Pa. 1994) ..

Advo, Ine. v Philadelphia Newspapers, Ine.,
51 F.3d 1191 (3° Cir, 1995)...

Associated Press v. U. §., 326 US. 1 (1945) 22.202 eee eee Serer eee 72

Blue Cross & Hiue Shield United v. Marshfield Clinic,
883 F. Supp. 1247 (WD. Wis. 1995) .......0.eceeeeee- co ceveeutececeerenes n

Blue Cross & Blue Shield United v. Marshfield Cliniv,

65 F.3d 1406 (7" Cir. 1995}

152 F.3d 588 (7 Cir. 1998) 0. cece cece tet e eee eeeeeene 71, 72
Borden, Inc. v. FIC, 674 F. 24 498 (6" Cir. 1982) .......00.0. pee ce bcc eeeeeeennenas 2

Borawski v. DePuy, Ine., 850 F.2d 297 (7th Cir.1988)

Brunswick Corp. v, Puebla Rowl-o-Mat, Inc.,

429 U.S. 477 (1977)... 2... wees
California v. American Stores Co,

495 US. 271 (1990) ee eee eee eee eee eee 70,77
California v. Sutter Healsh Sys.,

130 F. Supp. 2d 1109 (N.D. Cal. 2001) 00 eee eee ccc e eee eee renee renner 69
Citizen Publishing Co. v. United States,

394 U.S. USE (1969) 2 cee cee eect etree 68
Coca Cote Bottling Co. of the Southwest,

128 F.T.C. 452 (1994) 2.2 ec cee ce ee eee 3, 14, 15, 20
Coca-Cola Company, 117 F.T.C. 795 (1994) oo cece eee 11, 18, 23, 25, 28
Crown Zellerbach Corp., 5A F.T.C. 769 (1957) oo c ec ecceec eens 78
Diamond Atkali Co., 72 F.T-C. 700 (1967) 0.0... cee cee cece eee eer en eerie 71,74


demanded by CBI, only because “it was so late in the bidding cycle...that [Dynegy] did not feel it
would be fair to the other bidders.” (Puckett, Tr. 4572). Ta the end, the customer was concemed that
its prices would be higher without any hid from CRT or PYM_ (Price, Tr. 578, 622).

Respandents attempt to Curler support Lbeir assertion that Skanska Whessoc has entered the
U.S. LNG tank market by citing to evidence that Skanska‘Whessoe has provided “preliminary
information” to Yankce Gas, “called on Freeport LNG” and “provided budyelary pricing” to CMS.
This is hardly evidence of entry which will constrain an increase in price by CBE. Indeed, as [

| testimony shows, Whessoe was so far above CBI that they weren't being seriously
considered, and as { ] shows, that was after CBI raised its price levels significantly after the
merger. Providing information to Freeport proves nothing, since the customer had no expericnes
in avy pre-merger prices in the Uiited States ta match it against. (Eyerman, Tr. 7030), Thus, there
is no proof that Skunska/Whessoe will enler lhe market with two years, profilubly al pro-merget
prices, and sufficiently to drive prices back to pre-merger levels.

Respondents’ story about 'TKK/AT'Y is even more Wnuous, (R.BrieCat 28) TKK/ATV has
neyer come close to winning any bid for any LNG tank in the United States. The supposed tank
builder in the consortium, AT&V, hus never built ant LNG tank of any kind. (Cutts, Tr. 2393-94,
cmphasis supplied). Indeed, ATV has such a shortage of capacity and size that it cannot compete
on large jobs and recently had to nun two tank jobs down. (Cutts, Tr. 2366, 2375) Itis impossible
to believe that this unsuccessful tandem will become a dominant player, replacing PDM.

Technigaz/Zachry cannot dy it gither, Respondents point to Dyoegy as am example of
Technigaz’ entry, but they were eliminated from contention carly in the process, (R.Brief at 37).
There is simply no evidence that (his group can be a replacement [or PDM when it admittedly cannot

even | }

36



Respondents also assert that “A press release was published in the Wall Street Journal and
relevant trade publications. ‘Chis effort was successful.” (R. Brief at 142) Although no one at this
trial Aas ever seex this press release -- despite all ourcfforis to find any evidence in the Wall Street
Journal database (the alleged press release was never produced in discovery or offered at trial), it is
simply not true that it was “successful.” Mr. Glenn admitied that the “first time jhe| heard that PDM.
was up for sale” was when PDM’s CEO — not Scheman — called him directly. (Gienn, Tr. 4203).

Respondents also state: “In December 2000, Mr. Byers became convinced that there would
be no other purchaser for the EC division.” (R. Brief, citing Byers, Tr. 6776-77) But there is simply
nothing in these pages or anywhere that supports this statement. (See /d. (reading RX 28, but not
discussing Byers’ being convinced of anything). On cross-cxamination, Byers admitted that, at that
time, he “was stilt thinking about the possibility of liquidation” and “had ot at that point investigated
whether there was 4 possibility of another purchaser.” (Byers, Tr. 6895).

Contrary to Respondents’ assertions that Scheman’s and Byers’ testimony proves that PDM
would have “liquidated,” Schcman’s testimony is only that it was és “belicf’ that it would be
liquidated but that “it’s a possibility that” others “would have made us offers,” and Byers’ testimony
was that it would have been his recommendation to liquidate, but he never made this recommendation
and he would not have made it until he had actualy confirmed that there was no alternate buyer.
(Scheman, Tr. 6925, 6952-53; Byers, Tr. 6797-98, 6815-16, 6895). The only recommendation Byers
actually made was to take the company “private,” bul this was rejected. (Byers, Tr. 6845) The cited
portion of Bycrs’ testimony simply doesn’t state what Respondents assert at all. (R. Brief atl 45;
Byers, Tr. 6774-75) Indeed, B yers” purported commitment to liquidation w as never as firm as
Respondents’ counsel claimed. O n cross-examination, Byers admitted that when he “was still

thinking about Lhe possibility of liquidation, [he] had not at that point investigated whether there was

67


“[TJhere are exceptional circumstances where the economic evil inherent in the

acquisition ts not so much the immediate elimination of a competitor...but in the

longer-term trend toward concentration of which the merger is symptomatic. In cases

such as these an order confined to the prohibition of future mergers is itself an indirect

form of divestiture, since jt frustrates systematic acquisition programs ...

‘These exceptions to the general rule can be reasonably invoked however only when

the proof of their probable ellicacy is clear and convincing. Tn the absence of proof

to the contrary the assumption of this Commission must be that ‘only divestiture can

reasonably be expected to restore competition and make the affected markets whole

again.” én re Diamond Alkali Co., 72 F.T-C. 700, 742 (1967), questing National Tea

Ca., 69 K, LC. 226 (1966).

Thus, the Commission held that divestiture is the presumed remedy unless an exception is
proven by Respondents with “clear and convincing” evidcnec. Jd. This docsn’t sound like the
unsupported “law” Respondents attempt to seil to this Tribunal."

ton Contrary To Respondents’ Claim, U.S. Supreme Court Precedent Mandates
Divestiture.

Respondents then tum from their misapplication of FTC precedent to argue that the du Pont
case somehow held that “divestiture is not 4 required remedy under Section 7.” (R. Brief at 161,
citing U.S. v, E.l du Pont de Nemours Co., 353 U.S. 586, 607-08 (1957); U. &. v. ET du Pont de
Nemours Co., 366 11.8. 316, 348 (1961) Of course, this case never even mentions the rule proposed
by Respondents here, Moreover, it isn’t even an FTC case under Section | 1(b), as it was a Justice
Department case. But in de Pont, the Court reversed the lower court and ordered full divestiture

without any further hearing. 366 U.S. at 348. The Court noted that “[t]he very wonds of § 7 suggest”

“It should be noted that within weeks of National Tea, the Commission pulled back on
its holding, in General Foods, which held in a similar case: “Tt is scttled...1that divestiture is
normally the appropriate remedy in a Section 7 proceeding... This casc would be a particularly
inappropriate one in which to make an exception.” 69 FTC 380, 428 (1966) guoting in re
Proctor Gamble Co., 63 F.TC. 1465, 1584 (1963) But even the chance of ordering something
other than divestiture in a case like National Tea quickly vanished when, just two months later,
the U.S. Supreme Court decided a nearly identical case in U.S. v. Von's Grocery Co., 384 U.S.
270, 279 (1966) and reversed the District Court, ever ihough the post-acquisition market was
still competitive, and ordered “divestiture without delay.”

76


UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of

CHICAGO BRIDGE & TRON COMPANY N.Y.

a foreign corporation,

CHICAGO BRIDGE & IRON COMPANY

@ corporation, and
PITT-DES MOINES, INC.

a corporation,

To: The Honorable D. Michael Chappell
Administrative Law Judge

Docket No. 9300

@UBLIC RECORD VERSION)

COMPLAINT COUNSEL’S CORRECTED REPLY BRIEF

Rhett R. Krulla
Monis A. Bloom
Deputy Assistant Directors

J. Robert Robertson
Senior Litigation Counsél

Susan Creighton
Deputy Director

Joseph J. Simons
Director

Bureau of Competition
Federal ‘rade Commission

March 14, 2003

Michael A. Franchak
Choi Pak

Hector F. Ruiz, fr.
Bric M. Sprague
April Tabor

Robert 8. Lovsky
Cecelia M. Waldeck
Steven L. Wilensky
Complaint Counsel

Yasmine Carson
Honors Paralegal

Mary Forster
Merger Analyst.

Jacqueline Tapp
Investigative Assistant



VI

F. The Provisions of Complain|-Counsel’s Propased Order
Are Tailored to Restore the Competition that Existed
Prior to the Acquisition 222.62 ee eee eee eee

CONCLUSION ............ eect eects eee e eee e ete bb bees be ec been bees

iii


Co.,inc., 130 F. Supp. 2d 1025,1033-35 (W.D. Wisc. 2000} (rejecting defendants’ assertions thi the
presence of newly eslablished competitor, whose success was “highly unecrtain,” would maintain
the competition that had existed prior to the acquisition); United Tote, 768 F. Supp. al 1080-82
(actual entry insufficient to rebut prima facie case, unless it would “constrain anti-competitive price
increases by incumbents.”)."* As the Commission explained in Ekco Products Co., 65 F,.T.C. 1163

(1964), afd 347 F.2d 745 (7th Cir, 1965):

“A merger may violate Section 7 even though there do not appear to be formidable
harriers to entry...; the existence of potential competition does not justify or excuse
elimination of actual competition. In such a case, where the merger’s effects on
competition arc those proscribed by Section 7, its illegality cannot be overcome by
a showing of ease of eniry. Section 7 would surely be violated in a case where all of
the finms in an industry merged into one, even if the barriers to entry remained low...
A merger that has been proved to be so anticompetitive as to violate Section 7, even
apart trom difficulty of entry into the market, cannot be defended on amere showing
of absence of high entry harriers.” Ekco, 65 F.T.C. at]208; see aiso Reichhold
Chemical Ine., 91 F.T.C. 246, 288 (1978)

Indeed, although Respondents rely heavily on Baker I7ughes, it is striking that they do not
cite to a single case which has applied Respondents’ erroneous interpretation of Baker Hughes in the
decade since that case was decided, The Courts and the Commission, before and since Baker

Hughes, have recognized thal the simple presence of other competitors carmot alone be suificient

' In Franklin Electric, the defendants, the only two manufacturers in the U.S. of
submersible turhine pumps, combined their operations. Frankdin Elec. 130 F. Supp. 2d. at 1026.
The defendants asserted entry and, like Respondents m this case, defendants claimed that
historical lack of competition was not relevant. //, at 1034, The court rejected this argument and
held that the combination “should be viewed” as nothing “other than a merget to monopoly that
by definilion wili have an anticompetitive effect.” Jd. at1035.

'* See 2A P. Areeda, H. Hovenkamp & J. Solow, Antitrust Law, J 420b (2002) (“In the
case of mergers, by contrast. once high market concentration and a significant merger are shown.
the defendant should bear the burden of persuading as well as that of introducing evidence that
entry is sufficiently casy.... [DJoubt about casc of entry should be resolved against the defendant
in order to carry out the prophylactic purpuse of anti-merger law.”).

24


what would happen if CBI were “split in two.” (R. 168, Tr. 6156). No one has even suggesicd such
aremedy. CBI bought PDM for icss than a months’ revenues and has many other businesses, such
as HBI, that give that company its immense size. The fact is that CB] was doing great even before
it nearly tripled its size with the acquisitions of HBI, Morse, and PDM. Divesting PDM from this
conglomerate would still leave CBI much larger than it had b cen when il was successful asa
dominant player for decades.

Respondents also cite [ ] to claim that a remedy would reduce the number of
cotpetitors with sufficient financial strength. (R. Brief at 168) Respondents offer |

] that [

| (iz camera) The problem is that [ | is talking about CBI before the merger, but he was
simply not familiar with the history of CBI’s size at that time. [ din
camera. Additionally, [ ) testimony indicates that CMS has not made an assessment of the
proposed remedy’s effect on CMS. In fact the testimony regarding a break up of CBI was, [

] (id. at 28)
Respondents also assert that a remedy would disrupt projects alreacly in progress and directs
_ this court again, to the tL }. QR. Brief at 169) However, [ ] testimony

does not support Respondents’ assertion that Complaint Connsel’s proposed remedy would not
Testore competition. [ ] merely claims that it might be disraptive if the break up “occurred
during our project.” ([ }) This is merely a claim of inconvenience at most, which could
cerluinly be addressed during the divesliture process,

Fourth, Respondents assert that the proposed remedy would ieave two companies without
susficient resources or personnel to service their customer. (R. Brief at 170, citing Sawchuck Tr.

6066) Respondents asked Sawchuck irom BP if he had any concems if the FTC tried to “split up”

83


market “in order to increase the likelihood of a restoration of competition.” Ofin, 113 F.T.C. at 619:
see id, at 584.”> Respondents have failed to cite any cases to the contrary.

D. it Is Respondents’ Burden To Show That FULL Divestiture Should Not Be
Ordered.

While there is simply no precedent suggesting that anything less than divestiture is required
under Section 11(b), Kespondents have the “burden” through “clear and cenvincing” evidence to
show that complete — rather than parttal— divestiture should not be ordered. Fruchauf, 90 F.T.C.
at 892; Diamond Alkali, 72 F.T.C. 700, 742. Respondents turn this mandate around and say that it
is Complaint Counsel’s burden to show some other less restrictive remedy other than any kind of
divestiture wouldn’t restore some competition. (R. Brief atl62) This is unfounded. Indeed, the
Commission has clearly held “the Commission need not justify its order beforehand hy showing” that
a divestiture ‘will unquestionably restore competition.” Diamond Alkali, 72 F.T.C. at 742.

If Respondents were correct, then the U.S. Supreme Court was wrong, when in facts far less
egregious than those in this case it ordered divestiture without any further hearing whatsocver. See
El Paso Natural Gas, 376 U.S. at 661-662; Yon’s Grocery, 384 U.S. al 279. Was the Commission

wrong when it ordered divestiture in dozens and dozens of cases since the birth of the Clayton Act

3 See, e.g, Olin, 113 F.T.C. at 619 (Order to divest relevant product as well as a corollary
one az well):in Re Crown Zellerbach Corp., 54 F.T.C. 769, 808 (1957) (Order to restore
whatever assets “as may be necessary lo reslore St. Helens Pulp & Paper Co. as a competitive
entity in the paper trade, as organized and in substantially the basic operating fonn 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 asscts as may be necessary to
restore The Strick Company and Strick Plastics Corporation as a going concer and eflcetive
competitor in all the lines of commerce in which it was engaged immediately prior to its
acquisition by respondent”); Zkco, 65 F.T.C. at 1229 (1964), aff'd 347 F.2d at 754 (Order to
divest “all other asscts as may be necessary to reconstitute McClintock Manufacturing Company
as a going concem and effective competitor”).

78



Here, there is evidence of attempted or actual collusion as well as higher prices and margins.
None of this evidence would exist if there were any genuine threat of entry at the same level as PDM.
Thus, it is no surprise that C BI failed to o fier anyp ost-acquisition company documents even
mentioning alleged entry as any kind of a threat. Nor did any CBI witnesses (e.v., Lacy, Steimer,
Miles, etc.) come in and counter any of the evidence of illegal conduct. See UAW v. NRLB, 459 F.
2d 1329, 1336 (D.C. Cir. 1972) (Fatiure to bring in documents and witnesses creates “the most
vatural infercnee, that the party fears to do so,” and that the evidence “would have exposed facts
unfavorable to the party.”) (Citation omitted). Instead, CBI’s true view is best summed up by
Glenn’s statement that the only change in competition is that CBI can now “win the work” whenever
it wants. (Glenn, Tr. 4380; CX 1731 at 44) The bottom line is that, with PDM eliminated, no other
competitor can stop CBI’s quest for more profits at the expense of the customer.

This Tribunal Should Reject Respondents’ Novel “Exiting Asset” Defense,
Especially When They Cannot Satisfy Any Of Its Elements.

This Tribunal should refuse to follow Respondents” invitation to reject decades of U.S.
Supreme Court and Commission preecdent to ereate a new “exiting asset” defense. especially when
the 1986 article Respondents rely upon proposes that at a minimum: (i) all the assets leave the
market entirely; and Gi) no other altermative purchascr is available. Here, Respondents’ unproven
theory is that PDM would have liquidated by selling its assets to other competitors who would
continue to build ongoing projects like Cove Point. Moreover, both Schcman and Byers —
Respondents’ only witnesses on this pomt admitted that they did not try te contact any other
purchaser, There is simply no reason for this Tribunal ever to create new law.

Divestiture Is Required Under The Undisputed Facts Of This Case.
Finally, Respondents argue that this Tribunal should only consider divestiture as some kind

of last resort. Respondents want to keep all the PDM assets und promise to leach others how to

6


Moreover, ATV has a poor reputation in the industry, which prevents it from filling the competitive
Tole PDM played. [ ], admits bis firm faces reputational and marketing

disadvantages compared to Respondents. ([ Jin camera). Likewise,
Dr. Kistenmacher of Linde BOC testified that ATE V has “a very poor track record,” (Kistenmacher,
Tr. 862}. Moreover, Cutts testified that ATV is capacity constrained and because of this has hat 10
turn work away, (Cutts, Tr. 2375).

Respondents counter this undisputed testimony by asserting that [ ]
was happy with ATY as a supplier. (R.Bricf at 111) This reliance is misplaced. ATV has never
cunstrucied a project for [ ]. Additionally, [ ] testimony canfinms that
neither Matix and ATV can constrain CBIs ability to raise prices. [

]

ti | (it camera)). While [ ] testified that he was “satisfied” with

CBI’s price in New Johnsonville, he wanted a “better price” ftom them, {[

1a ]. t# camera). [

1€ ], i camera).

Respondents’ reliance on ATV's performacce in [ ]is
misplaced. Not only has { ] been dissatisfied with ATV’s performance, [ J
recently asked [ J lo lake over the project, bul [ ] tefused. (Scersone, Tr. $036). Respondents
then state that “BOC was extremely satisfied with ATV’s price at Midland.” (R.Bricf at 114)
Respondents fail to mention that ATV “Lhcy had many change orders, [so] that in the end the price

was higher than” CBI’s. (Kistenmaclhoer, Tr. 932). BOC told CB] that it would discuss a sole source

4g


CERTIFICATE OF SERVICE

1 hereby certify that I caused a copy of public record version of Complaint Counsel’s
Corrected Reply Brief to he delivered by hand to

and by express mail to:

Dated: March 14, 2003

The Honorable D. Michesl Chappell
Tederal Trade Commission

H-104

6 and Pennsylvania Ave. N.W.
Washington T2,C, 20580

Administrative Law Judge

Jeffrey A. Leon

Duane M. Keiley
Winston & Strawn.

315 W. Wacker Drive
Chicago, IL 60601-9703
(312) 538-5600

Counsel for Respondents Chicago Bridge & Iron Company
N.Y, and Pitt-Des Moines, Inc.

of,

Linda Cunningh Analyst



(Kwoka at 447-49} (Using a table to show which facts would work under their proposed defense
versus current law.) That is why, of course, Judge Hyun, the Commission and the Ninth Circuit
called Respondents’ “cxiting asset” defense, “novel: Olin, 113 F.T.C. at 618 ; 986 F.2d at 1306-7,
Respundenls also claim that under the law, Matrix’s “expression of interest” is insufficient
to block the defense.®* (R. Briefat 148), citing California v. Sutter Health Svs.,130F. Supp. 2d 1109,
1136 (ND. Cal. 2001). But Respondents fail to mention that in Sutter Health, the defendant had
proven that it had conducted a three-year “extensive good faith search for purchasers” in which it
“formulated a detailed and thorough proposal process and sought out numerous potential pariners.”
Sutter Health Sys., 130 F. Supp. 2d at 1137, Indeed, the one “expression of interest” mentioned in
the case came oniy after the defendant, Summit, “repeatedly contacted” the potential buyer who
“failed to make any offer in response to these inquires.” Ad. at 1137, Suter didnot invalve potential
buyers who were tumed away or a complete failure to contact any prospective purchasers, as
happened here. Thus, Respondents’ use of this authority is not a fair reading of that case.”
Insum, Respondents acknowledge that they cannot meet the accepted “failing firm” defense,

but wish that this Tribunal would adopt the less stringent “exiting asset” defense proposed by a 1986

satisficd:...grave probability of business failure...and that there was no other prospective
purchaser,” and rejecting defense even though “owners wished to sell”}(emphasis added).

Complaint Counsel’s Post-Trial Brief establishes that Matrix was indeed interested in
purchasing PDM’s DC business. (CCPB at 43) What is bizarre, however, is Respondents”
argument that even if Matrix bought PDM EC, that it couldn’t be an effective competitor. (R.
Bnefat 157) Yet, earlier in its bricf, Respondents claim that Matrix is some kind of competitive
threat to CBI. (Zd. at 103-04)

**Respondents also cite United States v. Culbro Corp., 504 F. Supp. 661, 668 {S.D.NLY.
1981), which is odd. Eli Witt was in Chapter 11 and was seeking to modify a consent decree to
allow Culbro to purchase it. Neither the acquirer nor the seller were competitors of the other,
The Court also noted [hat “several” potential purchasers “discussed the prospect of investing in
Eli Witt but, upon consideration, made no offer and declincd to invest.” {¢. That is not this case
at all.

69


Respondents assert that “location disadvantages and business management competence are
not barriers to entry because they can be overcome over time.” (R.Brief at 10). In support of
Respondents’ broad statement, Respondents cite US: v. Waste Mgmt. Inc., 743 F.2d 976, 983 (2d
Cir. 1984); and Advo, Inc. v Philadelphia Newspapers, Inc, 854 F. Supp. 367, 375 (ED. Pa, 1994),
Neither case supports such a broad assertion. Again, Respondents attempt to mislead this Tribunal
into believing Lhat because location disadvantages were found not to be barricrs te entry in one case,
they are therefore, not barriers to entry in any case. A review of the case reveals that this simply is
not what the courts in Waste Memi. and Phitadeiphia Newspapers intended.

In Waste Mgt. the court found that a person “wanting to start in the trash collection
business can acquire a truck, a few containers, drive (he truck himself, and operate oul ofhis home.”
Waste Mgmt., at 982. The court's finding of easy entry was specific to the trash collection business,
not to every market. Tn Philadelphia Newspapers, 854 F.Supp at 375, the district court recognized
that, “Entry into the Advertising Circulars market is comparatively easy... Little initial capital is
required Telalive to many other businesses.” /d. at 375. Again, the court was not making general
conclusions about entry into every market. In fact, the appellate decision (to which Respondeuts
failed to cite) makes thig abundantly clear: “the importance of know-how can be determined only
in the context of a particular business.” Advo, inc. v Philadelphia Newspapers, Inc., 51 F.3d 1191,
1201-1202 (3 Cir. 1995). The court explained: “While we do not question the judgment of other
courts of appeals that in other market contexts reputation is a significant barrier to entry, Advo has
failed to create a genuine issuc over the existence of barriers to entry in this case.” fd. at 1202

(emphasis in original}.””

“Respondents’ citation to Me(Fuhkee v. N. Propane Gus Co., 858 2a 1487 (11th Cir.
1988) also does not stand for the propositian they claim, and it was a case brought under the
Robinson-Patman Act.

30


“Thore are some [competitors] that have run on hard umes. There are those that have
stubbed their toe. You know, you’re only as good as your last job. And we're really
proud of the fact that, you know, a fot of owners out there, if they go fo build a
sophisticated project, like an LNG project or an LNG tank, they don’t want to
take a chance on a low price and a potential second class job or shoddy welding
or any of that kind of stuff, The kind of workshat we do is very specialized, very
sophisticated. We have an excellent track record.

And we think that, short of somebody coming in, which they do, and just taking a big
dive on the ptice, thal we can win the work every time technically. And if they
want to dive in and take the work for less than they can execute it for, that’s fine,
we'll just sit and watch them go out uf business, loo.” (CX 1731 at 44-45)
{emphasis supplied).

When asked about CBI’s higher margins, Mr. Glenn responded as follows:
“The margin levels are high... [W]e're trying to focus more of our energy, more of
our efforts, more of our resourecs on the higher margin work... And that’s work that
we-—you know, we have to compete in some manner with others and because of ow
concentration on lowering our costs and keeping our costs down, we can still be low
bidder and make more money on it than most of eur competitors, if uot all of
them.” (CX 1731 at 41-42) {emphasis supplied).
When asked about CBI’s prospects going forward, Mr. Glenn answered as follows:
“With this report, CBI has exceeded many of our previous records... The results
speak for thetnselves, so I will only comment that our markets and prospects
appear morc attractive to us today than at any time in our recent past. .., than
at any time since the IPO [in 1997].” (CX 1731 at 4, 28 (emphasis supplied}
See also CX 1735 at CBI 004168-HOU (new business taken has risen dramatically since 2061);
Scorsone, Tr. 5302, ia camera).
In short, the admissions of Respondents together with uncontroverted evidence of increased
prices and margins proves that there is no entry of any siymificance here. But talk is cheap. The
bidding at CMS, raised by Respondents in their brief, tells what really happened when CBI

eliminaled ils closes. competitor, PDM. (The comparisons are reflected on{ |, dara al p.3)

[

42



strength and the bond market's attitude”). There is no evidence that Matrix or Chattanooga, which
are also small companies like ATV, would have any greater success. They have not had any in
decades, and there is no evidence that they will in tii future.

4. There Has Been No Entry Into the U.S. LIN/LOX Tank Market Since
the Acquisition.

Respondents claim that entry has occurred in the LIN/LOX market. (R-Brief at 98) By
whom? The only company lhat has sold way LIN/LOX tanks recently, other Lhan POM, CBJ and
Graver (which went out of business), is ATV. Since December 1998, Matrix has bid on six
LIN/LOX projects in the United States, und won none ofthem, {CX 705 at 8; Kamrath, Tr. | 987¥°

Despite having some recent success in the LIN/LOX market, ATV has encountered mumetous
problems. As Respondents concede, ATV has had problems on a LIN/LOX job with [ ]

(R.Bref at 100) The problems [ ] has had with ATV are not minor, as Respondents
would have this court believe. Nor should the problems ATV has had on this project be pinned on
the customer as Respondents attempt in their brief. Rather, these problems go to the very essence
of whether ATY is a supplier that can replace PDM. | } testified that AT&V has “not
performed welt from our perspective,” and that AT&V’s “ability to manage a project is far worse
than I would have possibly imagived.” ([ Jin camera). | J
specifically slated that it will nat use AT& VY again on a TIN/LOX tank project based on their poor
performance on the [ ] project. ([ , ]i#t camera).

ATV is not exactly a replacement for PDM. Its handful of engineers and crews cannot

compete head to head against CBI with its over 1,000 engineers and crews all over the world.

Respondents retiance on the testimony of V. Kelly is misplaced. Afler the LIN/L.OX
tanks were awarded to AT&V, Mr. Kelley’s responsibility [or the project ended. (Kelley, Tr.
4624) From others more knowledgeable about ATV’s work, we know that ATV’s work was
poorer and more costly than CBI. (CCFF 466-467, 472-477)

47


], in
camera). Skanska/Whessoe quoted io [ a price af upptoximately $39 million to $46 million,
or about 10% higher than CBI's price. ([ ] camera). Skanska/Whessoe's
quote lo ] wats essentially the same as Whessoe’s earlier quote to [ ] fora
140,000 cubic meter single containment LNG tank. (RX 157 at [ ] fe camera). After
Teviewing the Skanska/Whessoe budgetary quate, [

], i camera). CMS did not know that prior
to the acquisition, CBI had quoted io [ ] for a 140,000-cubic meter single
containment LNG tank, (RX 157 att ] im camera). In fact, CBI's price to CMS for the

wank is[ ] higher than the price CBI quoted for that size tank prior to the acquisition. {[

Dj see [ a
Moreover, when CMS accepted CBT’s [ 1, CMS [
L@ ~ ], én camera). CMS observed, [ .
mi ], in camera}. CMS was unaware that the Cove Point price of [

] gave CBI over af ] profit margin, nearly three times higher than lhe pre-acquisilion

margin when CBI and POM competed. (Scorsone, Tr. 5333-34 in comera),®

Respondents’ comment about Elba Tstand omils any evidence thal any other company is
actually competing for that job. Thus, it has no relevance.

43


Division in Microsoft tried to equate that monopolization case to a merger ease. The D.C. Circuit

rejected this analogy, explaining: “complete divestiture is particularly appropriate where asset or
stock acquisitions violate the antitrust taws.’” Microsoft, 253 F.3d at 10S (Citations omitted)
(Emphasis added).

Thus, both the Microsoft and Marshfield Clinic courts got it right: divestiture és the
appropriate remedy in Clayton Act (Merger), Section 7 cases, but is not the norm in Sherman Act
(Monopolization} cases. So, why do Respondents cite these cases and ignore all the case law to the
contrary - especially alter Complaint Counsel pointed out their error amonth ago in response to their
Motion for Directed Verdict? We respectfully submit that this careless use of case law is
symptomatic of a much broader misuse of case law by Respondents in this case.

For exampte, Respondents omit the mostrecent U.S. Supreme Court opinion an this point and
the most recent FTC precedent. They erroneously cite Retaif Credit (1978) and Ekco Prods. (1964)
for the false proposition that the “Commission” held that Complaint Counsel has to shaw thal
divestiture ts {he apprupriale remedy (vs. other remedies) in Section 7 cases. They also claim that the
Supreme Court has held that divestiture is “not a required remedy” in Seciion 7 cases involving the
FTC. (4d, citing du Pont and international Saft — neither of which were FTC cases). This is a
complete misapplication of precedent. Let us first go through the FTC precedent in date order and

ihen include the most recent precedent. Then, we will do the same with the Supreme Court precedent.

*Respondents note that Mécrosofi relied upon U.S. v, Ward Baking Co., 376 U.S. 327
(1964} and Associated Press v. U.S., 326 U.S. | (1945), yet neither of these case are even
remotely on point cither. Ward Baking was a price fixing case where divestiture was not even an
issue. 376 ULS. at 334. Associated Press was likewise a Sherman Act — not 2 merger — case and
has nothing to do with remedies under Sections 7 or 11(b}. It simply held that a “full exptoration
of facts is usually necessary,” but even thai case had no evidentiary hearing, and still the
Supreme Court was “unable to say” if there wasn’t enough basis for the relief ordered. Ja. at 7,
21. These cases arc hardly support for Respondents’ position here.

72



issue when Praxair divested CB1 and when PDM sold ils assets to CBI. Indeed, Byers testified that
PDM was fully prepared to go out {o cuslomers, “and yet consents to make sure these contracts could
betransferred to another company.” (Ryers, Tr. 6803-6084), Bycrs did not suggeat this was difficult,
bul testified that getting consents from customers was something he believed the company could do.
(Byers, Tr. 6805) There is no suggestion, other than Glenn’s self-serving testimony, lo the contrary.

Moreover, Fl Paso’s Bryngelson testified that he would even be willing to gtve PDM “one or two”
contracts. (Bryngelson, ‘[r. 6156).

Third, Respondents assert that the proposed remedy will make both companies “incapabieTM
of competing. (R. Brief at 166) There is ne support for this claim. Byers’ idea is that anything
smaller than the mamracth CBI simply won't do. Not only does this assertion make no sense, it
contradicts Respondent’s argument that size doesn’t mailer or that ATV, Chatanooga or Matrix do
not need to be large to compete. (R. Brief at 57) (bonding is not a barrier to entry). Respondents
cannot have it both ways.

In an attempt to further support their assertion, R espondents cile to Larry 1zzo and his
purported concem over whether two residual companies would have the requisite bonding capability.

_ AR. Brief at 167} However, an emss examination, J2z0 admitted that his testimony regarding what
would happen if CBI was required to divest the assets it acquired was speculation, (I7z0, Tr, 6538)
Izzo also admitted he did not know what the company would look like if it was broken up. fd.

Bryngelson’s testimony dvesn'l support Respondents either. (R. Brief at 163). All he says
is that El Paso would be “less inclined to do any more that ong or two jobs with” the new PDM.
Indced, the fact that Bryngclson would cyen consider, sight unseen, hiring a new PDM for “one or
two” jobs demonstrates that Respondents are wrong. Moreover, the quoted transcripts show the

lengths to which Respandents had to go to get even this testimony: Respondents repeatedly asked

82


in camera); See Pranklin Elec. Co., 130 F. Supp. 2d at 1033-35 (Rejecting defendants’ assertions
that a newly established competitor, whose success was “highly oncertain,” would muimlam the
compelilion that had existed prior to the acquisition); Gnited Tote, 768 I. Supp. at 1080-82 (Because
success of entry remained uncertain, such entry “would not constrain anti-competitive price increases
by incumbents.”). What is also telling is that ‘Lechoigaz would [
] in camera) It knows what will happen if PDM comes back -
prices will go down.
Tn addition, Jolly testified that Technigaz/Zachry [ ] Golly,
Tr. 4721-2). [
] Golly, Tr, 4713, 4721-2, [ ], #2 camera). Jolly further
states that CBI wouid have a cost advantage in the United States hecause they possess a fabrication

fucility. (Jolly, Tr. 4715). Jolly acknowledges that [

] in camera, RX 738 at FTC001537

(Jolly, Dee.) i camera). Mr. Jolly gocs on to say, |“

*) (RX 738 at FIC 001534 (Jolly, Dec.) én camera,

emphasis supplied). Fahel, from Zachry, agreed and testified that [

], iz cumeru) And the only time Technigaz/Zachry have [

| in camera) They felt [

37



Iv.

POST-ACQUISITION EVIDENCE DEMONSTRATES
THAT ANTICOMPETITIVE EFFECTS ARE LIKELY, .
BECAUSE THEY HAVE ALREADY OCCURRED. .........00600..00.000.2-2- 31

A Ry Eliminating its Only Significant Competitor,

the Acquisition Increases CBI's Market Power 0.0.20... cece scence ee eee 52
B. Actual Evidence Of Anticompetitive Conduct Independently

Requires A Finding Of Liability Ayainst Respondents In ‘This Case. ........ . 53

Budget Prices Are Relevant. 0... sec ee eve eer c eect ete reeereerenes 54
D. Post-Acquisition, CRT Discourages Competitive Bidding ..............-... 56
E. Following the Acquisition, CBI Has Increased Prices

and Failed to Honor PDM’s Prices. 0.02.0. cece cece cert e teen rents eeees 58
EK. Critical Loss Theory Confirms the Anticompetitive

Effects of the Acquisition ©... 0.6... cece ee eee eee eee eens 58
G. Respondents’ Criticism of Auction And Probubilily ‘Theory Is Unfounded. .. . . 60
RESPONDENTS’ “EXITING ASSETS” DEFENSE
FAILS AS A MATTER OF LAW. .... 00-62-00 ena ee tee 62
DIVESTITURE IS REQUIRED TO RESTORE THE
COMPETITION ELIMINATED BY CBI’S ACQUISITION OF PDM. .......--.-++ 70
A No Law Supports Respondents’ Position That Any Remedy

That Onnts Divestiture Is Permitted Under Section I1{b). 0.20.20... eee ee 70
B. Contrary To Respondents’ Assertions, FTC Precedent

Mandates Divestiture. 22.0.0. ...- 222022 eee eee teen ee 3
Cc. Contrary To Respondents’ Claim, U.S. Supreme

Court Precedent Mandates Divestiture. 20... 0.6 -e cece eee eee eee eee 76
D. It ls Respondents’ Burden ‘lo Show That FUT. Divestiture

Should Not Be Ordered. ...... 6.6. cece cece cece teeter eee 78
E. 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. 2.0.6.0... 0c cece ere eee ee 79

ti


prices and margins. (Simpson, Tr. 5781) That’s exactly the kind of success Mr. Glenn repeatedly
tells his investors. Never ouce did Glenn or anyone else at CB] tell investors or their own employees
that market forces were going to keep them from raigmy margins. CBI's [ ] price increase
to CMS from pre-acquisition to post-acquisition levels is twelve times the price increase assumed
by Dr. Harris and wauid be profitable even if CBI lust 80% of its sales volume, (CX 1642 erilical
loss is (.62/(1.62 - .$5)= 805); see CCFF 633. Yet, the customers still want and need CBI, because
there simply arc not good alternatives,

G. Respondents’ Criticism of Auction And Probabitity Theory Is Unfounded,

The acquisition enables CB1 to increase its price because CBI has eliminated its closest and
most cost effective competitor. The Merger Guidelines explain that the anticompetitive effects apply
both to negotiated awards and to bidding for project awards: “[F]n some markets sellers are primarily
distinguished by their relative advantages in serving different buyers or groups of buyers, and buyers
negotiate individually with scllers. Here, for example, sellers may formally bid against one
another for the business of a buyer, or each buyer may elicit individual price quotes from
multiple sellers. ... A merger involving the first and second lowest-cost sellers cauld cause prices
to rise to the constraining level of the next lowest-cost seller.” Merger Guidelines § 2.21 n.21
{emphasis added); Dalkir, et af, Mergers in Symmetric and Asymmetric Noncooperative Auction
Markets: The Effects on Prices and Efficiency, 2000 Int’1J. of Industrial Organization 18 at 395 (“in
ascaled bidding environment] suppose that [firm] # merges wilh some other firm, , . . it realizes that
with some probability it has climinated the second lowest cost firm, ... Hence i's (with a partner}
expected price rises”), Dr. Simpson explained how the theory under the Merger Guidelines works.

(Simpson, Tr. 3072-3086).

60



Chattanooga Boiler & Tank ever sold a liquid petroleum gas storage tank? / A. Idon't know.”); id.
at 146-47 (“Q. To your knowledge, has Chattanooga Boiler & ‘Tank ever sold a ficld-erected tank
intended to store liquefied gas of temperatures arounttnegative 50 degrees Fahrenhuit? / A. really
don’t recall.”) If their prices on LIN/LOX are any comparison (which prices are the only evidence
in this case for Chattanooga), Chattanooga is weil ahove ¢very other playerin the field. (CCFF 499).

As explained aboye in the discussion about LNG tanks, Respondents’ claim that there are
no burriers to entry is simply without basis. Moreover, Mr. Kelley of ITC testified that he will not
purchase an LPG tank trom a company with ne prior experience because “I don’t want to be a guinea
pig.” (N. Kelley, Tr. 7104-05; see alvo Warren, Tr. 2290-91; CX 415 at 2). LPG enstomers want
a tank supplier with a long track record building several LPG tanks. (Carling, Tr. 4512 {the last ten
ycars would be the most relevant experience); JX 27 at 72 (N. Kelley, Dep.) (would “definitely want
[an LPG iank supplier] to have had prior experience building an LPG tank before I would hire them
to build an LPG tank for me.”)). Engineering and design capabilities are also barriers in the LPG
market. (RX 682 at MCG 000059 (“Texaco will verify that bidder is not overcommiltted te perform
that work.”); Warren, Tr. 2295 (Before allowing a company (o bid, Fluor reviews a potential LPG
lank supplier’s volume to cnsurc the supplier is capable of managing multiple projects
simultaneously, and to ensure there is not ton much backlog to prevent Fluor from accessing the
supplier's resources promptly as needed); see CX 415 at 2).

Additionally, the evidence demonstrates hat for larger LPG tanks, ATV cannot compete with
CBI because ATV cannot build the larger tanks. (CX 303 at CBI/PDM-H 4001285 (CBI is PDM’s
“only competition on tanks over 100,000 [barrels|)). ATV’s competitiveness is generally limited
to “small tanks..$500K & under.” (CX 86 at PDM-CH 002618}. Tt also cannot obtain Lhe required

bonding [or larver jobs. (Cutts, Tr. 2366) (“we can’t bond these larger jobs because of aur financial



1990 WL 198819
(Che as: 1990 WL 198819, *6 (D.D.C.))

notion of purchasing Meade. Additionally, the
search that was conducted by Harbour Group was
perfunctory, was commenced after the deal with
Diethelm as close ta finalization, and was not
designed to result in serious alternatives to the joint
venture between Meade and Celestron that was near
fruition.

Conclusion

ne can wonder why the FTC hus chosen to sink
such a substantial amoum of its resources into
blocking a merger. of two smal) subsidiaries in an
indusury that makes “hobby telescopes for a
minuscule part of the population. On the scale of
consumer goods, it docs not strike the Court as
crying ow for such substntidl governmental
attention. However, the Court acknowledges that
this decision lies within the Government's
prosecutorial discretion. ‘Ihe Coust cannot create a
small company defense to the antitrust law, nor is it
iuclined to rewrite the failing company defense,
which has rightly beep construed very narrowly.

As antitrust Jay now stands, the cffect of the .

proposed joint venture between Harbour Group and
Diethelm “may be . substantially to lessen
competition or 10 create a monopoly.” The
defendants have not met their burden in showing
that they are eptited to the nartowly construed
failing company defense, cven though this may well
mean the demise of the defendants, and a
1 take-uver of the market by foreign
competition, Accordingly, the FTC is entitled to a
preliminary injunction, .

For the foregoing rcasong, the Court finds that
defendants are not entitled to the failing company
defense, and the FTC's motion for a preliminary
injunction shali be pranted.

PN). This standard places a lighter burden on the
FTC than chat imposed by the sradisiunal equity
standard for issuance of a preliminary injunction.
‘The FTC does not have to show the traditional
equity standards of irreparable injury, ptohabilicy
of success on the metits, and that the balance uf
equities favors the petiti FIC y.
Weyerhaeuser Co 665 F.2d 1072, 1081-82
(D.C.Cir.1981}.

FN2. The stipulation, signed on October J7, 1990,
and filed on Gccober 19, 1990, provides, in part:
1, For the pucpores of detenmining the motion for

Page §

preliminary injunction under Section 1306} of the
Federal Trade Conunission Act, it is stipulated tha
plaintiff tus offered an adequal prima facie case
on all relevant issues except the affirmative defense
of failing company, and that defendants will not
comest that suc prima faci showing meets the
standards under 13(>) for issuing a preliminary
injunction except for the issuc of the failing
company defense.

2, ‘The failmg company defense is the only legal
and facta) mauer at issuc in this proceoding, and
defendams bear the burden of proof on that issue.

FN3. In order to determine sn acquisition's likely
impact on competition, a Coun jooks to the
televam product smrket, geographic market, and
the wansaction’s impact on competitic Untred

States v. 4. duPont de Nemours & Cv.,353 US.
586, 593-95 @9S7). If the acquisition may
Substantially Jessen competition in any market, it
vidlates the Jaw, 7

PN&. In Cistzen’ Prablishing, 394 U.S. 131 (1965),
the Supreme Court, relying on its holding in
International Shoe, restared 3 third requirewrent for
a successful invucation Of the failing, curmpany
defense: that the prospects of scorganizarion
through receivership, or dhrough Chapter X or
Chapter XI of the Bankruptcy Act, would have 40
be dim or nonexistent 10 make the failing company
doctyine applicable ok a 137-138. The
viability oof this requirement jis currently
qucsGonhle sice, ia mo later decisions, the
Supreme Court did not include this requirement
whik ‘discussing the faiting company defense See
U.S. v. General Dynamics, 415 0.8. at KH; U.S.
vy, Greater Buffale Press, Inc. 402 U.S. $49, 555
(1S7L). The Court need not decide whether or not
dvfemdanis musi prove that the prospects of
reorganization under the bankrupicy laws ane dim
or nonexistent, since i finds thet defendants have
failed to show that the merger ts the “culy
available” aliernative for Meade.  Avoordingly,
the Count will not reach the issue of regiganization
under the bankruptcy Jaws.

FNS. Shortly after the purchase, Harbour Group
mcgotiated with Mr. Diehel for a retroactive $1.5
million reduction in the purchase price.

FN6. Tarbour Group presented no affidavit from
any official at the Rank of Boston, did not depose
any official from the Bank of Boston, and did not
file any document from the Rank of Rosion which
estsblishcs precisely what the Bank of Boston

* intends to do regarding Harbour Grout loan at

Copr. © West 2003 No Claim to Orig. U.S. Govt, Works


United States v. Calmar, inc., 612 F. Supp. 1298, 1301 (D.N.J, 1985}. R. Pre-Trial
Brief at 9.

Morcover, one of the cascs Respondents cite now for a different point, Rebel Oit, uses the

Merger Guidelines to explain thal “entry” must be “timely, likely, and sufficient,” and that entry is
not sufficient unless it can “take significant business away from” the defendant. Rebel Oi! Co., Inc.
y. AtlanticRichfield Co,, 51 F.3d 1421, 1440 8" Cir, 1995), Even more appropriate, however, is the
precedent from the courts in the D.C. Circuit itself and the Commission in merger cases using this
test. Heinz, 246 F.3d 715-717 0.13; Coca-Cola Boitling, 118 F.T-C. at 586, Thus, the legal test
is clear, and the facts do not hegin to meet it.

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

Respondents claim that Baker Hughes has rejected the Merger Guidelines’ requirement for
timely entry (within two years), even though this requirement wasn’t added to the 1992 Merger
Guidetines until two years after that case in {990. What Beker Hughes said was that the Department
of Justice's argument for “quick” entry was undefined. 908 F.2d at 983. It is defined now, and
courts and the Commission follow it expressly. Merger Guidclines § 3.2

There is no evidence that any of the so-called foreign entrants have won, or are likely to win,
any bid for any relevant product in competition against CBI since the acquisition. [thas already been
over (wo yeurs since the acquisition, and still there is no sufficient entry. Nor is there any proof that
any sufficient entry is likely any lime soon, since every project where CBI has shown any intercst
and that has been awarded, CBI has been selected. The only occasion where any foreign competitor
may have a chance is the one project where CBI refused to bid, Dynegy, which tells us nothing about

any entry’s ability to restrain CBI's prices.

20



usist on teceiviny multiple, confidential bids for each order.” Baker Hughes 9U8 F.2d al 986, Of
course, in Baker Hughes, at least four companies competed, and two of the alleged entrants had
already entered and sofd products in the market, A. at 988-989; 731 F. Supp. at 6. But those facts
ure not even close ta those here. After the acquisition, the largest of all customers, [ ], Fl Paso,
Poten & Partners, and CMS are clealing solely with CBT. Of these,[ ] and CMS looked at one
other potential supplier, Whessoe, whose prices were much higher than CRT’s, There is no chance
that Whessoe, unlike one of the competitors in Baker Hughes, would become the number one
supplier, 908 F.2d at 989 (top four competitors frequently switched relative positions in the market).
Morcover here, CBI's price was at the same level as its Cove Point project, with its[ —] profit
margin, which is nearly lore limes the margins achieved when POM and CBI were campeting. (See
[ ] onfra, CCHF 778-831).

There is no evidence that most of these companies have any idea that CBI is raising prices
and margins. Nor could they, since PDM, the ouly other close comparison to CBL is gone. Even
those large customers who know that they are being “hosed,” are still forced to deal with CBI:
I'RW, Boeing, Linde, and Memphis G&W are hardly small companies, Those companies that are
small, like Spectrum Astro and Fairbanks ace just out of luck altogether. Accordingly, there is no

; evidence that so; phisticated buyers have prevented the anticompetitive effects of the merger.

Probably the hest example of how a Jarge customer is handling the lack of competition is
CMS, which selected CBI as their LNG contractor. (Scorsone, Tr. 5074 in camera) Respondents,
of course claim that CMS is sophisticated, but CMS’s knowledge base is limited to CBI’s high
margin business at Cove Point and the even higher prices of Whessoc. CMS thought that the price
off ] quoted by CBI for the 140,000-cubie meter, single containment tank, was wilhin

range of a competitive price, (f | in camera). CMS agreed to CBI’s

16


As courts have regularly concluded, there is simply no reason that an interest of other Gioms
in making sales is alone sufftcient to reswre competilion and prevent CBI from cxercising market
power. See Rebel Oi Company, Inc. v. Atlantic Ricifield Co., 51 F.3d 1421, 1440 (9% Cir. 1995)
(‘The fact that entry has occurred docs not necessary preclude the existence of ‘significant’ entry
barriers. Ifthe output or capacity of the new entrant is insufficient to take significant business away
from the predator, they are unlikely to represent a challenge to the predator’s matket power”)
(citations omitted). Rather, this Tribunel’s inquiry must be focused on whether those firms will
actually prevent an cxcrcise of market power. See Staples, 970 F. Supp. at 1087-88; Swedish Match,
131 F, Supp. 2d at 170, Coca-Cola, 117 F.T.C. at 960 (Entrant must “be ‘successful’ in the sense
of being profitable” and “sufficiently expand output to prevent existing producers from raising
prices...”). The weight of evidence in this case establishes (hat other firms will not prevent, and
indced have not prevented, CBI from raising prices after eliminating PDM.

To make their points, Respondents misstate, overstate, understate and misapply the law,
Specifically, Respondents attempt to mislead this court into believing that findings of bartiers to
entry in past cases apply to the case at hand and thus rebut a prima facie case,

For example, citing to Baker Hughes, Respondents state that, “Evidence regarding actual
or potential entry rebuts a prima facie case.” (R.Brief at p.9} This is not a accurate representation
of what the court in Baker Hughes stated. The Baker Hughes decision clearly notes that, “If the
totality of he defendant's evidence suggests that entry will be slow and ineffective, then the district
court is unlikely to find the prima facie case rebutted.” Saker Hughes 908 F.2d at 989.

Respondents also state that, “Other courts who have examined the definition of an entry
barricr have found that experience, investment of time, and investment of money are genurally not

barriers to entry.” Respondents cite United States v. Gillette Co., 828 F. Supp 78, 85 (D.D.C 1993);

28


evidence showing a lessening of competition may constitute an ‘incipiency’ on which (ou base a
divestiture suit...”); Merger Guidelines § 2.2; Tasty Baking Co. v. Ralston Purina, Inc., 653. Supp.
1250, 1267 (b. L. Pu. 1987) (The most-recent evidence of defendants’ monopoly power is found
in defendants’ post-acquisition pricing decisions.”).

Respondents cannot rebut these price inercases. Harris cannot do so cither. (£.g., Harris,
Tr. 7498 (regarding price increase at Cove Point: “T don’t remember every little price, ... T don’t
Temember the details”); id, at 7506 (Docsn’tremember Boeing price increase); id. at 7508-9 (Doesn't
“remember one way or the other” Linde price increase); i at 7466 Cunaware” of change in
competition for Spectrum Astro higher bid)). Instead, Respondents simply claim that Complaint
Counsel has not offered a “shred of evidence” of price creases and thal any apparent price increases
are really “budget prices,” and thus in their view irrelevant. As detailed in Complaint Counscl’s
Post-Trial brief there are far more than shreds of evidence here: The evidence is overwhelming.

A By Eliminating its Only Significant Competitor, the Acquisition Increases CBI’s
Market Power

The resulting elimimation of PDM as a “substantial independent competitor” is evidence of
anticompctitive c{fect that warrants judgment against Respondents. Heinz, 246 F.3dat716;, Swedish
Match, 131 F. Supp. 2a at 169; Staples, 970 F. Supp. at 1083; Merger Guidelines § 2.21; RR.
Donneily & Sons Co., 120F,T.C, 36, 193-201 (1995) (disenssing unilateral exercise ofmarket power
through merger of 2 closest substitutes and citing to Merger Guidelines 2.21.). By any standard, all
the evidence set forth in our Post-Trial Brief demonstrates [hat CHL eliminated ily closest cormpetitor

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



atticle, but one they cannot quaitfy for cither. Accordingly, this Tribunal should reject Respondents*
attempted defense, which is not supported in law.

¥. DIVESTITURE 15 REQUIRED TO RES FORE THE COMPETITION ELIMINATED
BY CBI’S ACQUISITION OF PDM.

Respondents cannot get around the plain language of Section 11(b) ofthe Clayton Act, which
mandates thal the “Commission...shalf...issue and cause to be served on such person an order
requiring such person to...divest itsclf of the...assets, held.” 15 U.S.C. § 21(b) (Emphasis added).
Instead, they incorreclly assert that the Commission has reyected Lhis plain language.

A. No Law Supports Respondents’ Position That Any Remedy That Omits
Divestiture Is Permitted Under Section 11(b).

Respondents lead off their argument with the claim that the “purpose of an antitrust remedy
isnota punitive one.” (R. Briefat 165, citing Brunswick Corp. v. Pueblo Bowl-o-Mat, Inc.,429 U.S.
477, 485-86 (1977)). While Complaint Counsel is not seeking punishment here, just an application
of the established law, it is odd that Respondents would miscite this case or even use it here. The
only issue on appeal was whether damages was appropriate, and the case actually holds that damages
inan antitrust case “were provided in part for punitive purposes,” but could not be awarded when the
plaintiff suffered no antitrust injury. Brunswick Corp. v. Puchia Bowl-o-Mat, Inc. 429 U.S. 477,
485-86 (1977) Moreover, Brunswick is not even a Section 11{b) case (it didn’t involve the FTC); it
was a private plaintiff case.
Relying on a case that docs not even mention the governing law here, Respondents simply
ignore binding precedent. Indeed, they never mention that:
* The U.S. Supreme Court bas held that under Section 11(b), the Commission
has the “dury” to order divestiture in a Section 7 case (California v. American
Stores Co, 495 U.S. 271, 284-85, n.11 (1990) (emphasis added));

e The Commission has specifically held that “‘a presumption should favor total
divestiture” yorsus cven partial divestiture “in merger cases,” and that “the



Indeed, Gerald Glen, CEO of CBi, admitted that with the acquisition of PDM, CBI “now
ha{s} uncqualed capability in [its] chosen field.” (Glenn, Tr. 4384; CK 1720). Tie also told his
shareholders that CBI's casts were now lower than those of its campetitors: “we can still he low
bidder and make more moncy on it (ban most of our compctitors, if not all of them.” (Gleo Tr.
4381; CX 1731 at 42) The fact is that CBI can “win the work” whenever they want io, unless
someone bids under their cost. (Glenn Tr. 4380; CX1731 at 44) PDM and CB] even discussed the
fact that they had a “pricing advantage” that they could use to prevent any Joss of market share.
(CX1544 at. 7941) Thus, no competitor will be successful in achieving profits at pre-merger prices
-- insivad, if they try to undercut CBE as Mr. Glenn admitted, he’ II just “watch them go ont of
business.” (Glenn, 'I'r, 4380)

G Entry Cannai. Be “Sufficient” To Replace PDM.

There is simply no evidence that any of the supposed entrants can replace the campetitive
force that PDM was before. Indeed, CBI never expected that it would lose any of the market share
it bought by buying PDM. (Glenn, Tr. 4252, 4259, 4315-16, 4321) So far, none of these foreign
entrants have wan any projects, and the only one that seems to he any possibility is Dynegy’s LNG:
tank, for which CBI refiged to hid. P-ven that customer now has little choice and is concerned that.
it will have to pay a higher price than it would have if CBI had bid. (Price, ‘I. $78, 622)

CBs only other competition — though weak — is ATV for LIN/LOX, but it Jacks capacity

to replace PUM (Cutts, ‘Ix, 2366, 2375; CX 466 at 7235; CX 1654) [

] (Kisteumacher, ‘fr. 862, 870; [
in camera, [ jin camera) Recently, ATV did such a poor job

-onan[ ] job that Lhe customer asked CBL (o slep in and do the project, but CBI refused.

Ns
n


Teputation)). Moreover, the undisputed evidence is that mentoring isn’t even a viable option. (See,
eg., Gill, Tr. 202} (“It would take more than mentoring”); Neary, Tr. 1458 (Mentoring wouldn’t make
Howard a “real viable competitorTM)). =

The very case Respondents cite, Ford Motor Co., U.S, 405 U.S. 562 (1972)held: to “permit
Ford to retain the [manufacturing] plant and name and to continue manufacturing spark plugs would
perpetuate the anticompetitive effects of the acquisition,” and it “‘would be novel, not to say absurd,
interpretation of the Anti-Trust Act to hold that after an unlawful combination...[the <lefendant| must
be left in possession of the power it has acquired.” 405 U.S. at 574 (Citations omitted). Then, the
Court ordered divestiture holding that “‘doubts as to the remedy are to be resolved in [the
government’s| favor.”” /d. at 575, quoting du Pont, 366 U.S. ai 334.

in short, Respondents’ misuse of deposition transcripts docs not eliminate the fact that they
violated the Clayton Act when they combined CBI with PDM. As in every case the Commission has
considered, divestiture is required together with further relief to ensure PDM’s compctitive position
in the marketplace, The remaining CBI will remain as a competitor. There is no evidence to the
contrary.
Vi. CONCLUSION

After reviewing dozens and dozens of divestiture cases in afl contexts and fora, wecannot find
a case that screams out more for divestiture than this onc. On facts far less severe than these, the
Commission has ordered divestiture of what was acquired, and even what was not acquired despite
the chance (hat it would throw the respondent into bankruptcy. If this case does not warrant a finding
of liability and an order of divestiture, then Scction 1 1(b) has no meaning whatsoever. Complaint

Counsel therefore respectfully asks this Tribunal to apply the established law in the tradition of Judge

88



effectively in 1995 in Memphis for an LNG tank. [

} (CCTF 869, 872; RX 157 at [ J] in camera)
None could do so post-acquisition, when El Paso, [ ], CMS, and Poten & Partners all selected
CBL None can compete against CATin FVC. Nothing has changed these facts since the acquisition
— except that PDM is gone, and CBI is free to raise, and indeed has alrcady raised, its margins and
prices towards the price of the next lowest-cost competitor.

Almost every antitrust case in history includes evidence of some other competition. Even
Microsoft faces competition from JBM and Apple, Coca-Cola Bottling bad only 2 54% market share
after it bought the rights to distribute Dr. Pepper, and yet the Commission still ordered it to divest
because there was “some evidence” of price increases “since the acquisition.” Coca Cola Bottling
Co. of the Southwest, 118 F.T.C, 452, 606-608 (1994).' Even if there were other competitors
actually in the U.S. market, the deciding issues are that CBI bought its closest competitor, PDM,
which is not likcly to be replaced by an equally cost-effective and qualified competitor. Numerous

recent cases from courts in the D.C. Circuit have used this economic principle to find liability?

‘Cardinal Health, 12 F. Supp. 2d 34 (Merger of four wholesalers enjoined even though
there were 40-pius (ullAinc pharmaccutical wholesalers in the United States); FTC v. Staples,
Jnc., 970 F. Supp. 1066, 1079 (D_D.C, 1997) (Merger enjoined even though many other
competitors sold office supplies besides Staples and Office Depot).

ee eg. FIC v. Hf. Heinz Co., 246 F.3d 708, 725 (D.C. Cir, 2001) (By buying its
closest competitor, Heinz would create a “durable duopoly” that “affords both the opportunity
and incentive for both firms to coordinate to inercase prices”); FTC v. Swedish Match NA. Inc.,
131 F. Supp. 2d 151, 169 (D.D.C. 2000) (“A unilateral price increase by Swedish Match is likely
aller (he acquisition because it will climinate one of Swedish Match’s primary direct
competitors...”); Cardinal Health, 12 F. Supp. 2d at 64-65 (By combining with its closest
competitor to capture an 80% market share, defendants could “curb downward pricing pressure
and adversely affect competition”); Staples, 970 F. Supp. at 1082 (By eliminating closest
competitor, “this merger would allow Staples to increase prices or olherwise maintain prices at
an anti-competitive level.”); FIC v, Ceca-Cola Co, 641 F. Supp. 1128, 1139 (D.D.C. 1986)
(‘The stark, unvamished truth is that the Dr. Pepper brand has been a staunch effective
compclitor...that Coca-Cola Company has tried to stifle” and is “now seeking to buy”); Merger

3



burden rests with respondent to demonstrate that a remedy other than fuli
divestiture would adequately redress any violation which is found.”
Pruehauf Corp., 90 F.T-C. 891, 892 (1977) Emphasis added);

° The Commission held — quite coniraryto Respondents’ enlire theory — th:
is our obligation to order divestiture of assets.” Retail Credit Co. , 92 F.
1, 164 (1978) (emphasis added); and

e The Commission held that Respondents’ proof against votal divestiture must
be “clear and canvincing.” Diamond Alkali Ca., 72 F.1.C. 700, 742 (1967).

Ignoring this binding precedent to the contrary, Respondents lead their argument that
Complaint Counsel somehow “bears the burden” for showing that divestiture is “appropriate,” with
the Marshfield Clinic case. (R. Brief at 158, citing Blue Cross & Biue Shield United v. Marshfield
Clinis:, 883 F. Supp. 1247 (W.D. Wis. 1995), )°? One might think that Marshfield Clinic was a
Section 7 (merger) case, since Respondents state unequivocally that there was an “acquisition at
issue.” (/é.) But again, Respondents have misstated the case: there was no acquisition at issue!

Marshfield Clinic is not a merger case! It’s a private-party Sherman Act case (“essential
facilities”), where the plaintiffs were trying to get the court to order damages and divestiture of what
was legally attained. See Marshfield Clinic, 65 F.3d 1406, 1412 (9 Cir. 1995) (Defendant achieved
monopoly without using any “improper means”}. As the district court points aut, the plaintiffs there
“did not cite to a single Case in which retroactive divestiture was awarded in a private section 1 or 2
[Sherman Act] case,” noung, by way of contrast, that “Divestiture has been awarded in section 7 cases
in the context of proposed mergers and in cases brought by the government.” 883 F. Supp. at 1264.

Respondents’ onty other case law they cite for their false proposition is Microsoft. (R. Brief

at 158-59) Yet, Microsof? was alsa not a merger case, and yel, like Respondents here, the Antitrust

“Respondents fail to note that the case was also reversed, not once but twice -- Not
exactly the kind of case that sounds like solid precedent, especially when it has nothing to do
wilh Sections 7 or 11(b) of the Clayton Act or the FIC. Marshfield Clinic, 65 F.3d 1406 (7" Cir.
1995); 152 F.3d 588 {7" Cir, 1998),

71



that divestiture “is a natural remedy,” under Section 7 and that other remedies might he appropriate
— though rare (citing dozens of cases ordering divestiture), and it further explained that the case was
not brought under Section 11(b) (involving the FTG, where divestitun: might be obligatory — an
issue it did not need to decide. £4, at 330, n. 9.* Thus, to use du Pont as precedent to say that
chyestilure is one of many remedies under Section 7 in an FTC, Section 11(b) case is wrong.
Ycars after du Pont, the Supreme Court did deal with the issue of what Section 1 f(b) meunt

in American Stores:

“In § 11 of the Act, Congress directed the FTC to issue orders

requiring that a violator of § 7... ‘divest itsclf of the fassets] held” in

violation of the Act. ... ‘‘The Commission's duty was to prevent the

continuance of this unlawful action by an order directing that it...divest

itself of what it had no right to hold.”
California v. Am. Stores, 495 U.S. 271, 284-85, n.11 (1990), (quoting FTC v. Western Meat Co., 272
U.S. $54, 559 (1926)}. This “duty” to order divestiture of what CBI had wrongfally acquired is clear.
From this clear precedent, there can been no misunderstanding from any decision by the Commission
or the U.S. Supreme Court that the FTC can award more than divestiture, but that at leasi divestiture
mosthe part of the final order under Section 11(b). Respondents have offered ne contrary precedent.

Inexplicably, in their previous briefs and at closing, Respondents failed to menvon any of his

pertinent case luw or even the governing provision of the Clayton Act, § 11(b). Accordingly, as all
the pertinent case Taw dictates, divestiture is the proper remedy for illegal mergers under Section
11(b). In addition, Section 5(b) of the FTC Act expressly authorizes the Commission to award any

further relief that would restore competition. And the Commission has determined that this authority

allows it to order “broad divestiture” including divestiture of assets outside of the relevant product

* ‘The Court also held “it is well settled that once the Government has successfully borne
the considerable burden of establishing a violation of law, all doubts as to the remedy are to be
resolved in its favor.” 366 TIS. at 334.

77



United States v. General Dynantics Corp.,

ALS ULS. 486 (1974) 0 eee ete eee ee 5, 13, 18, 51, 54
United States v. Gillette Co., _

828 P. Supp 78 @2.D.C 1993) 60. coe nee eee ee eee 28, 29
United States v. Greater Buffalo Press, Inc.,

402 US. 549 (L971) ooo oe cece cece ene evevevauvesusnesecnens 64, 68
United States v. international Harvester Co.,

564 F.2d 769 (7 Cir. 1977) eee ee cee cee ee eevee eeeeceee 18
United States v. M.P.M., inc.,

397 F, Supp. 78 (D. Colo. 1975) 0... cn ete eee cece eee aeee 11
United States v. Microsoft Corp.,

253 F.4d 34 (D.C. Cir. 2001) 2. cece eee cece aes 51, 71, 72

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

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

United States v. Syufy Enter., 903 F.2d 659 (9 Cir 1990)... 00. cece ce ceeeeceeeees 10,19
United States v. United Tate,
768 F. Supp. 1064 (D.Del. 1991) 20... eee cece eae ++ 15,24, 37, 86
United States v. Von's Grocery Co., 384 US. 270 (1966) 22. cc eee ee eee 76, 78
oe

United States v. Ward Baking Co., 376 U.S. 327 (1964)

United States vy. Wasie Mgmt. Ine.,

743 F.2d 976 (2d Cir. E9B4) cece ce erent eee eens 10, 30
Wsal v. Great North Asset Mgmt, Inc.,

114 F, Supp. 2d 720 (ND. TL 2000) o.oo cece cece reece cece eeec ee eees 27
STATUTES:
Clayton Act,

Section 7, 15 U.S.C. $18 00... ee neces passim

Section 11{b), 15 U.S.C. §21(b) - passim

viii



Judge Hyun obviously heard the aggressive voice of he Commission in Ekco and RSR Corp.
Later, in Olin Corp, 113 F.T.C, 400, 584 (1990), Judge Hyun held, “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 | I(b) of the amended Clayton Aci.” Offa, 113 FTC at $84, He thus
ordered: “As for relief, it is determined that the customary divestiture of the acquired assets and
busiuess is appropriate.” fd, al 416. in addition, Judge Hyun followed the Commission’s lead in
Ekeo by ordering more than divestiture: “The administrative law judge is of the view that full
restoration of competilion in the relevant markets and the necd to insure the viability of the divested
business require that the divestiture include” both the product at issue as well as another faclory for
a product where no competitive effects had been found, Jd. at 416. The Commission affirmed.” £d.
at 590. Once again, this is exactly the remedy that Complaint Counsel seeks iu this case — divestiture
of both the EC and Water Divisions ty, as Judge Hyun found, “ensure the viability of the divested
entity.” fd. at 619.

Apparently, only once did the Commission order something different than a classic form of
divestiture and that was in National Tea, where it found no evidence that the post-acquisition market
was nol competitive, but it feared that any further acquisitions might make it so. Thus, the
Commission decided that then was an “appropriate place at which to call a halt” and ordered National
Tea to stop buying any more grocery stores, National Tea, 69 F.T.C. at 277, quoting Brown Shoe Co,
vy. United States, 370 U.S. 294, 346 (1962). Vet, it made it clear that this was am unusual case. The

Commission in Diamond Alkali explained this unusual holding:

See also Jim Waker, 0 E.T.C, 671, 764 (1977) (“Divestiture is particularly desirable
where, as here, the Section 7 violation is preruised in parl on Lhe elimination of a substantial
independent competitor. No other form of relief can compensate for such loss as well as the
restoration of that competitive force in the market”).

75


to carry out the express will of Congress by determining whether the acquisition “may be substantially
to lessen competition.” and if it does, to order CBI to “divest” itself of the asscts illegally acquired
and take other steps to cnsure the competitiveness vad viability of ihe divested POM. 15 U.S.C.
§§ 18, 21.

BK The Provisions of Complaint Counscl’s Proposed Order 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. Respondents ignore these proposed remedies. Instead, Respondents’ only allernalive
jemedy is a mentoring program or some means to give others “assistance” so they could compete.

This Tnbunal should scriously consider the implications of Respondents’ irgument: It
undermines all the rest of their entire brief. If competition can be restored with some “assistance” or
mentoring from CBI, why can’t a divested PDM compete as well? Even though it would slill be
several times largct than ATV or Matrix, why couldn’t CBI do a little mentoring to recstablish the
company they illegally purchased?

Nevertheless, the law is clear, CBI cannot escape divestiture with a promise of mentoring.
No Commission or court decision has allowed such a cop-out that allows the offender to kcep the
iNegal acquired assets.” See Diamond Alkati, 72 F.C. at 744-45 (Rejecting Respondents’ offer to
meritor another potential competitor); United Tote, 768 F. Supp. at 1086 (Finding that divestiture is
proper and thal respondents presented “no reasonable altemative to the Court” other than retaining

the assets from the proscribed acquisition).

Of course, the evidence is that such a remedy would not work in any event. (See, e.g.,
Gill, Tr. 202)(‘Tt would take more than mentoring"); Neary, Tr. 1458 (Mentoring wouldn't make
Howard a “real viable competitor}).

86



] What CMS didn't know is that before the acquisition, CBI's price was

[ ] lower than Whessoe’s (for similar tanks) and that CBI’s current price al Cove Poimt was
substantially higher (hun the pre-acquisilion competitive price and had neatly triple the profit margin
as the one resuiting from competition between PDM and CBI pre-acquisition. (fF D

The evidence trom[ ] also shows where Whessoe’s price was in comparison to CBI’s prior
to the acquisition, as did the evidence from Memphis in 1995, where Whessve’s price was also far
higher than either CBI's or PDM’s. Tn short, the unmistakable facts demonstrate that CBI was able
to extract a much higher price and margiu from CMS that it ever could if POM were competing,
Likewise, its current sole-source arrangements with [ j and Poten Partners are likely to lead to
the same result. Indeed,[ —_ is relying on the fact that the next lowest competitor now, Whessoe,
is stili much higher than CBI. This evidence of post-acquisition price and margin increases, as well
as the other evidence of price mereases and collusion detailed im our Post-Trial Bricf and Proposed
Findings demonstrate that this acquisition must be undone, as a matter of law. General Dynamics,
415 U.S. at 505 n.13 (“post merger evidence showing a lessening of compctition may constitute an
‘incipiency’ on which to base a divestiture suit...” }.

c. Budget Prices Are Relevani.

Respondents argue that the many documented examples of price inereases by CBI following
lhe acquisilion should be ignored beeausc some of these involve only “budget prices.” (R.Brief at

126-29), This argument is a smoke screen. Following the acquisition, CBi has increased both acizal



report from a CBI salesman reports that MG Industries “has doubts” of Chattanooga’s “abilities.”
(CX 41 at CBI-E007336); see also Cuts, Tr. 2333 (ATV doesn’t even consider Chattanooga as a
competitor). =

Tnshort, these so-called entrants have been here in the United States for years and have never
made any significant impact in the LIN‘/LOX market. Only one (ATV) has built any recently, and
its priecs are higher sod its quabty 18 lower and ils capacity is Jess than CBI's. Moreover, it is not
likely that anything will change in this market any time soon. Representatives from both ATV and
Matrix have testified that there are significunt bumers lo entry. For example, A'V recognizes
developing a reputation similar to CBY’s for suppiying cryogenic tanks can take as much as ten years,
(Cutis, ‘lr. 2372) Mr. Newmeister (of Matrix) iestified, “Well. 1 was involved with Matrix Service
as they penetrated in that market, and it took a long time to develop the engineering expertise to have
a quality product to offer and it takes a long time to he accepted by the customer base.”
(Newmeister, Tr. 1567) Additionally, the evidence demonstrates that Matrix would need te spend
about $2 million for a large press anc a large number of dyes and $2-3 million for the automated
blast and paint system to be able to fabricate LIN/LOX tanks. (Newmeister, Tr. 1591). Morcover,
the wulding processes used on a LIN/.OX tank are different from the processes used for ambient
temperature tanks. (Newmeister, Tr. 1582). The welding processes for a LIN/LOX tank require very
specialized know-how; not any company can do il casily. (Kistenmacher, Tr. 842; Hilgar, Tr. 1347-
48). Welding technology is so important in maintaining a competitive advantage that CBI regards
its welding procedures as proprietary and does nol vive hem to competilors, (Rano, Tr. 6028-29).

Respondents’ assertions of entry cannot explain how any of these companies will prevent
CRI from raising priecs, Nor can they explain how it was that CBI was able to raise prices for

LIN/LOX projects to Linde and Praxair by 8.7% after the acquisition and get away with il, if entry

50



“volatile and shifting, and easily skewed”). Evidence that high market shares are sustained over
many years ts regularly used in antitrust cases to assess market power. See [feinz, 246 F.3d at 716;
Borden, Ine. v. FTC, 674 F. 2d 498, $12 (6" Cir, 1982). 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) He offered
no alternate theory. Respondents’ own documents fist relevant projects that encompass the same
time period Complaint Counsel proposes.

Nevertheless, Respondents still ciaim that CBI was 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. This
argument is wrong. First, CBI bid and then won a TVC project just six wecks before the merger,
after promising to Spectrum Astro that it could rely on CBL as a “long-term supplier and partner” in
the TVC business. (CX 1599 at 7). CBI had also bid on another TVC project just three years before
and [

]

Second, the fact that CBI was a major force in bidding and even winning « recent bid
demonstrates that they were a significant market participant and thus must be included in the market
for merger analysis purposes. See, ¢.g., FTC v. Practer & Gamble Co., 386 U.S. 568, 581 (1967)
(“tt is clear that the existence of Procter at the edge of the industry exerted considerable influence
on the market’); E! Pause Natural Gas, 376 U.S, at 661 (Unsuccessful bidders are no less
competitors than the successful one. The presence of two or more suppliers gives buyers a choice”);
Merger Guidelines § 1.41 0.15 (“Where all firms have, ona forward-looking basis, an equal
likelihood of securing sales, the Guidelines indicate the agency will assign those firms equal
shares.”); William E. Kovacie, Merger Policy in a Declining Defense Industry, 36 Antitrust Bull.

543, 573-74 (1991) (Assigning share to bidders who have a likelihood of winning); Afiant

12


al J price inercase for margin alone. (JX 1i al 2}. We do nol know if TKK was profitable
at all. Thus, the simple fact that FKK may have won a bid recently in Trinidad after CBI bid up its
price doesn’t tell us whether TKK or Whessoe could compele profitably m the United States ut pre-
acquisition pticcs, when they never could before and haven't since.

The only other so-called evidence of cntry proffered by Respoudents “that new entry will
constrain CBI's pricing” is the (cstimony of Glenn and Scorsone that they read a couple of press
releases anc thus have decided that there may be entry in the LNG market. (R.Brief at 64) This
unsupporied Lestimony, offered solely for “state of mind” should be atforded liltle ur no weight.
Falstaff Brewing, 410 U.S, at 564-565. Moreover, their self interested testimony is not corroborated
by any intemal documents at all. Respondents could not presenta single sales presentation, strategic
planning document, or cven an e-mail which remotely discusses this supposed threat to CBJ. This
is in stark contrast to the numerous pro-merger business records in which CBI fretted that PDM “is
eating our lunch” (CX 245 at CBLPL 4004707) and that PDM loomed over CBI as its “main”
competitor (CX 163 at CBI-PL006679). Lf thesc forcign companies lbreatencd CBI as mach as
Respondents contend, one would expect a Flurry of similar e-mails, presentations and memos
articulating the nature of the threat and proposed coutermeasures that CBI should undertake, Thus,
an inference should be drawn that such evidence exists against Respondents’ position.

indeed, the public statements made by Gerald Glenn completely contradict his testimony to
this Tribunal regarding CBI's “fear of new competitors.” CBL bas won every LNG project tor which
it made any offer sines Lhe acquisition. Yet, it hasn't had to lower its prices. Indecd, its prices and
Margins are going up dramatically. ([ J): CX 1576 at 1; compare to CX 1628 at 23}. When
askecL specifically how the competition had changed “over the last five to ten years,” Mr. Glenn

answered as follows:

4l


Despite their assertion to this tribunal that ATV has an “excellent reputation,” the evidence
at trial indicates otherwise. For example, Respondents’ cast a negative image of AT&Y in their
profile of competitors. A POM “Competitor Profile*states that AT&V’s “quality” and “safety” are
“poor.” (CX 86 at PDM-CH 002617}. Another POM document notes that on past projects, ATAV
“performed poorly in terms of supplying a quality tank or sphere and has not met customer safety
slandards. Kellogg and Bechtel (hrew AT&Y o ff projects duc to poor quality or poor safety
practices. Moreover, in the past, Dupont, Shell-Norco and Exxon (Baton Rouge) would allow
AT&Y to bid” on their projects. (CX 606 at PDM-CH 002617). CBI describes AT&V's safety
practices as “severely lacking ... and are being labeled as an undesirable risk by many.” (CX 263 at
CBI-HOU-004606), More importantly, ATV admitted that it lacks capacity to replace PDM (Cutis,
Tr. 2366, 2375; CX 460 at 7235; CX 1654} [

-] (Kistenmacher, Tr. 862, 870; [ ] iz camera;
[ ] it camera) Recently, ATV did such a poor job on an [ ]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 tun down two projects and could not get
proper bonding for “hanger jobs.” (Cutts, Tr. 2366, 2375)

Respondents’ other examples of purported entry are Matrix and Chattanooga Tank. Their
only support for supposed entry by Matrix was that it was “permitted” to bid on a project. (R. Brief
at 90) This is hardly evidence of cntry. The fact remains, that Matrix has never built an LPG tank
in the United States. In fact, Newmcister testificd that Matix had never even bid on one.
(Newmeister, Tr. 1596, 1609). Moreover, contrary to Respondents’ claim that Chattanocga Boiler
and Tank is ‘poised for entry,” Chattanooga has been vaguely expressing its interest in building LPG

projects since 1976 and has never won any project. (JX 35 at 9, 145, 146 (Stetzler, Dep.) (“Q. Has



Judge Hyun and ordered the divestiture of the San Francisco office in addition to the others (Portland
was cxeluded) and held:

“The purpose of relief in Section 7 cases isto undo the probable anticompetitive

effects of the unlawful merger, fo Testore competition to the state in which it existed

at the time of the merger, or to the state in which it would he existing al the time relief

is ordered... In order to achieve this goal, a strong presumption favors total

divestiture of the unlawfully aquired entity as the surest means of achieving it.” 7d.

at 161 (Citations omitted)

Respondents never mention the Commission’s decision. Moreover, as in fico, the
Commission decided that i hac! the power to order snare than divestiture. Indeed, it held that “it is
our obfigation to order divestiture of assets necessary to assure the viability and attractiveness to
would-be purchasers of the civested entity.” 7d. at 164 That is, of course. exactly what Complaint
Counsel seeks in this case.”

In XSK Corp., not cited by Respondents, Judge Hyun had made the same decision — partial
divestiture - and was similarly reversed by the Commission, which held that “a presumption should
favor total divestiture of the acquired assets” even if it means divestiture of cquivalent plants that
were not part of the original acquisition! RSK Corp, 88 F.'Y.C. 800, 9892-97 (1976), aff'd, 602 F.2d
1317 (9" Cir, 1979); see also Diamond Alkali, 72 F.T.C. 700, 742 (1967) {ordering divestiture of the
acquiring company’s factory, where the acquired company’s assets had been eliminated and holding:
unless “clear. andl convincing” proof is offered “to the contrary” the assumption of this Commission

must be that “only divestiture can reasonably be expected to restore competition and make the

alfecied markels whole again,” quoting National Tea Company, 69 F.T.C. 226 (1966).

Respondents also cite Grand Union Co., 102 F.T-C. 812, 1928-1029 (1983) (R. Brief
at162) for the irrelevant conclusion that “partial” divestiture (of grocery stores in that case) may
be appropriate when a violation is only found as to those assets. Since the Commission found no
‘iolation al all in that case, it is difficult to sce how to apply that dicta here.

74



compete better. No law supports their argument. Since this casc began, Respondents have found

no case where the Commission, or any court in an FTC case, declined to follow the mandate of

Congress for some form of divestiture under Section 11(b) when a violation is found. Although it

is conceptually possible that in some extreme case the Commission might find that no form of

divestiture is possible, over many decades the Commission has not found such a case. (See Section

V infra.) This case does not begin to rise to the level that would warrant any exception to clear

Congressional intent.

Tn sum, the substantial evidence shows that CBI's acquisition of PDM may lessen
competition and indeed already has done so. Thus, Complaint Counsel requests thal this Tribunal,
following Congress” mandate in Section 11(b) and established Commission precedent, order CBI
to divest the assets it acquired from PDM, and take other steps necessary lo reestablish PDM as a
distinct and separate, viable and competing business in the relevant markets.

I EXTRAORDINARILY HIGH CONCENTRATION IN THE RELEVANT MARKETS
DEMONSTRATES THAT THE ACQUISITION MAY LESSEN COMPETITION
SUBSTANTIALLY.

Respondents’ brief, once again, does not challenge any of the market definitions at issue.
Tastead, (hey assert that-proot of high market concentration alone does not satisfy a prima facie case.
Not true. Heinz, 246 F.3d at 716 (“Sufficiently large HHI figures establish the FTC's prima facie
case thal a merger is anti-competitive.”) (Citation omitted).

Respondents also do not contest that the HHIs in this case are between 5,900 and 10,000.
At best, they claim that by shortening the relevant time period and thus cxeluding one of the parties,
the HHis are at the maximum 10,000 in some of these markets. Their claim is that even if CBI bid
and even won Projects, it was not in the market because those projects were not built during the Jast

couple of years before the merger. Respondents’ theory makes no sense. Indeed, courts have


alliance arrangement with CBI. (RX 273). This docsn’t sound like acompany that is that happy with
ATV.

ATV is a weak competitor, Plagued with insefficient size, financial strength and a poor
reputation and quality, ATV is unable to price profitably at pre-acquisition prices and docs not have
the suificient capacity to drive CBI’s prices back (o pre-acquisition levels.

Matrix likewise has not been price competitive, and its bids have been too high on recent
projects, (Newmeister, Tr, 2156-58}. Air Liquide’s representative testitied that Matrix’s prices have
“never been below what we'd seen from any of the other competitors.” (Kamrath, Tr. 2000-2001).
Likewise, Air Products, who purchased a LIN tank from Matrix, helieves that Matrix has “more
limited capacity to produce ficld-crected cryogenic storage tanks,” as compared to CBI or PDM, and
that the former PDM is “much deeper in crews and manufacturing capabilities than Matrix is.”
{Hilgar, Tr. 1354, 1382-83; FX 25 at 4 14 (Hilgar Dec.}). Additionally, Matrix sold its fabrication
facility, known as Brown Stecl, in ale 2000, (Newmeister, Tr. 1589-90). By losing its fabrication
capability, Matrix is required to subcontract the fabrication work for these tanks, and subcontracting
could increase Matrix’s eosis, (Newmeister, I'r, 1569, 1570, 1602). Therefore, as Mr. Newmeister
testified, the sale of Brown Steel could have the effect of diminishing Matrix’s competitive strength.

Finally, Respondents’ ¢laum (hat Chatlanooga Tank would somehow replace PDM is without
any support. (R.Brief at 107) The evidence at trial clearly shows that Chattanooga cannot act as a
price constraint on CBI. On the one occasion when it recently bid on a LIN/LOX project,
Chattanooga’s price was higher than any other competitor. (CX 189 at CBi-PLOL5L05; [

] in camera (Chattanooga’s price was [ ] higher than [ ]). CBI's internal
documents confirm Chattanooga’s weakness as acompetitor. CBI questioned whether the customer

will “trust a ‘newbie’ firm like CBT to do cryo tanks.” (CX 40 at CBI-E007246). An August 2001

49


Ekvo Products Co,, 65 F.V.C, 1163 (1964) 02. 24, 34, 72, 73, 74, 75, 78, 79

Ford Motor Co. v. U. S., 405 U.S. 562 (1972) oo eee eee eee 88
Fruehauf Corp. v. FTC, 603 F.2d 345 (2d Cir. 1979)... eee cece eee eee 9
Fruchauf Corp., 90 EVC. 891 (9TI) ooo coe eee eevee eee 71,78
Fruehauf Trailer Co., 67 F.T.C, 878 (1965) 6.0 ect nenen eee 78
FIC v. Alliant Techsystems, fac.,

808 F.Siapp. 9 (D.D.C. 1992) 2c cea eeveeees _ 8,12, 15, 32
FIC v, Cardinal Heaith, inc.,

12 F. Supp. 24 34 (D. D.C. 1998) 20. ee eee 2, 3, £3, 14, 15, 19, 23, 25
FTC y, Coca-Cola Co., 641 F. Supp, 1128 (D.D.C. 1986) 20.0. eee eee eee 3
FTC v. Consolidated Foods Corp.,

BRO TS. 592 (1965) cee eee cece eee ee ee eee eee es 5,51, 59
FIC v. Food Town Stores, 539 F.2d 1339 (4 Cit. 1976)... cece cece teen eee 32
FTC v. Great Lakes Chemical Co.,

528 F. Supp. 84 (N. DTH. (1981) oo eee ee ee eee eee eee ee 10
PTC v, HJ. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001) ........4... 3,4, 7, 8, 11, 12, 13, 20, 52
FIC v. Harbour Group Tavestments, L.P., No. 90-2525,

1990 WL 198819 (D. D.C. Nov. 19,1990)... 0. cece eee cece e pace eee ees 4. OF
FIC v, Libbey, Jnc., 211 F. Supp. 24.34 (D. D.C.2002) .ooceceeeecceseceeses 2,5, 13,51, 59
FIC v. National Tea Co., 603 F.2d 694 (8th Cir. 1979) 2.0.00 008. see eeee ees + 18, 74, 75, 76
FTC v. PPG Tndus. Inc., 798 F.2d 1500 (D.C, Cir, L986) eee eee 8, 64
FIC vy, Procter & Gamble Co., 386 U.S. 568 (1967) ooo ccc ec ete e en en reer eeee 12
FIC y, Staples, inc., 970 F, Supp. 1066 (D.D.C. 1997) ..........2......3, 14, 23, 25, 28, 52
FIC v. Swedish Match N.A.inc.,

131 F. Supp. 2d 151 (D.C. 2000) 0... eee ence 3, £3, 23, 25, 28, 52
FTC v. Toys “R” Us, 221 F.3d 928 (7 Civ, 2000) ceca eee teen r eens 5, 51, 59



that “none of the purchasers potentially available to purchase the EC Division coutd have done so at
greater than liquidation value.” (R. Brief at!46) These statements arc fatse.

In his deposition (Respondents did not call Seheman at trial), on payes 6924-26 — the pages
Respondents cite— Scheman was asked whether he did such an analysis and he unequivocally admits
that he “was never asked to do this, so I'm not sure—” Then Respondent’s counsel! asks him if he
bas “an opinion” as to what he might have done. Scheman answers, “we would have .., resrouped
and evaluated all the options.” (Scheman Tr. 6924-25) In short, Scheman did no analysis, At the
deposition, Respondents* counsel tried to get Scheman to be more conumittal (han he was, and thus
occurred the unmistakable question and answer:

“Q. And based on your years of experience and those of your partners, did you see

any other purchaser who could have made a bid for the EC Division who was already

a competitor in that industry whose bid would have been higher than the liquidation

value that you had determined for the EC Division’?

A. Higher than the liquidation valuc? Lmean, we were never asked to undertake that
study...” (Scheman Tr. 6952) {emphasis added).

Respondents then claim that “Scheman concluded that financial purchasers would not have
been interested in purchasing the EC Division, and would bave had extreme difficulty raising enough
capital to make a purchase.” (R. Brief at 146, citing Scheman, Tr. 6930} (Emphasis added). This
sure sounds like Tanner conducted a “study” involving “purchasers” except that Scheman’s
testimony is about only ove financial buyer who called to “express a potential interest,”
(7d. \(omphasis added) Scheman simply “watk[ed] away” from the conversation, because he thought
that such a sale would have been “very difficull.” This is hardly evidence Lhal no financial investor
would have been interested. In fact, Scheman wrote the opposite in his report that there were a “lew
potential buyers” us well as “some competitors” that might wish to buy the EC Division. (Byers, Tr.

6820-21; RX 29 at PDM-C 1006327).


B. Entry Camnat Be “Prafttable ut Pre-Merger Prices.”

Respondents’ lengthy arguments that several competitors know how to build some of the
relevant tanks miss the point enturely. The law requires that Respondents show that these
competitors can compete profitably at pre-acquisition prices. The fact is that they cannot, They
could not compete eftectively when they tried in 1995 in Memphis for an LNG tank. They did not
atterwatds, when they were dropped from consideration by El Paso,[ ], and CMS, who all selected
CBI. ATV's brief success ina few LIN/LOX projects proves only (bal ATV's fal prices, including
change orders, arc higher than CBI's, and their quality of work is poor. Even ATV admits that it
cannot compete on large projects and that its capacity is limited. And its building of a tiny LPG tank
a few years ago shows only that they can build one tiny LPG tank in many decades and cannot do
much more than that, as their President admits. In TVC, there is simply no evidence whatsoever of
any entry or competition. CBI is a monopolist. (CCFF 221-226)

The evidence is undisputed that CBT and PDM were the low-cost and preferred suppliers in
this industry. Foreign companies, with previous joint ventures, that tied to compete in 1995 in
Memphis could not come within 20% of CBI and PDM’s prices — and at least one of these
competitors was already close to its cost. When a new LNG tank necded to be contracted for in
Memphis, just last year, tt customer ignored these companies and said that CBI was the only one
qualified to do the work. [  ] reached the same conclusion. The high level of prices for other
compelilors is uppurent in the LIN/LOX/LAR market as well. As discussed below, the main
problem with CBI*s argument is that only it and PDM were the low-cost producers with potential
entrants like TKK and Whessoc pricing 20-50% higher than them. Thus, once CBI 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.2t; CX 1721 at 42, 44-45; | 1 infra)

21



91 954d (“Failure even to inquire of such obvious candidates as competitors. presumptively indicates
that the search has not been diligent").

Second, Kwoka's novel defense furlher requires that the assets are actually exiting the
market? Respondents’ plea that they would have liquidated does not meet this requirement, Byers’
idea was to sell ibe current contracts, the plant, and the engineering and intellectual property assets
to other competitors who would carry out the current business. (Byers, Tr. 6802-05, 6829, DX 29 at
PDM-C 1006327 (Assets would be sold to others in the markez)). In short, if CBI had not purchased
PDM, under Byers’ plan, some other company other than CBI (such as Matrix, Nooter or Pasadena
Tank) would be building Cove Point as we speak! Jd. In other words, the assets would nor “exit”
the muarkel, Olin, 986 F.2d at 1307 (Rejecting defense because “assets would not be exiting the
relevant market’}. That simply doesn’t satisfy even this navel defense. fd. Thus, Respondents
cannot even make out Kwoka’s novel defense, which has never been adopted by any court or agency.

That ne court or agency has ever adopted the proposed “exiting asset” defense” is no surprise.
Even Kwoka and Warren-Boulton say that it “would seem unlikely...that a leading firm would wish
to acquire capacity with the charactcristics of exiting asscts,” and thus the authors “cannot cite an

example ofa dominant finn” ever doing so. 31 Antitrust Bull. at 446. Nor would it make any sense

22 Respondents’ claim thal it was cnough to send out a press release is also simply
insufficient a3 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).

2 Simply panting to exit isn’t enough to trigger this requirement, and that is all
Respondents really claim here. See, e.g., United States v. Greater Buffalo Press, inc., 402 US.
549, 555 (1971) (Even though “owners wished to sell,” defendant still had to prove that “there
was no other prospective purchaser for it}; United States v. Phillips Petroleum Co., 367 F.
Supp. 1226, 1260 (C.D. Cal. 1973), (Desire by management to exit the business docs not satisfy
the defense); United States v. Blue Bell, Inc., 395 F. Supp. 538 (M.D. Tenn. 1975} (Company’s
intention to divest ilsclf of ils business is immatynal): PPG, 798 F.2d at 1507 (That company
simply wanted to “scll the company...for the best price available” is “irelevant”).

64



someone to move forward with.” (Glenn, Tr. 4126). But now CBI pressures customers to sole-
source Tram CBI and has walked away fram customers who insisted on competitive bidding.

CRTs refusal ta bid on Dynegy’s Huckbeny LNG project, either for FEED) contractor, for
EPC contractor, or for the LNG tanks, demonstrates CBI's ability to discipline a customer who
helieves it can abtain lower prices hy insisting that CBI competitively bid the work. Dynegy is not
satisfied with the pricing ithas received from foreign suppliers, as asserted by Respondents. (R.Brief
at134}. Dynegy wiil pay more and incur greater risks hecause Dynegy is unable to source the LNG
tanks ftom CBI or POM. (Price, Tr. 622, 626-28).

The lesson CB! taught Dynegy has not been fost on CMS, [ ], Hl Paso, and Poten &
Partners, who have fined up to sole-source their U.S. LNG projects through CBI CCFF 582-5386.
For the many projects being sole-sourced through CBI, budget prices provide the only competitive
price information upon which customers musl rely lo make their purchase decisions, No customer,
at Ivast in the past 25 years, has elected lo source a U.S. LNG tank fom apyone other than
Respoudents, (CCFF 882} Thus, except for further price increases resulting from change orders,
in today’s ehviroument, CBL’s budget price is the actual price that the customer will pay.

For example, CBI provided a budget price to CMS foran LNG tank, which has been accepted

-2

by the cuslomer. [

1 & J in camera) (“there really wasn’t a
competitive price for Une tank”), And, as discussed above, the price CMS received was at the same
level as the final price for Cove Point with its profit margin of over [ ], nearly double ibat of
CBI’s company-wide margm levels and three times that of the margins that resulted from

competition hetween PDM and CBI pre-acquisition. (%2.; [ )

5?



(“The more compelling the prima facie case, the more evidence the defendant must present to rebut
it.”); Coca-Cola Bottling, 118 F.T.C, at 586; see 4 P. Areeda, TT. Tlovenkamp & J. Solow, Antitrust
Law, (tev. ed. 2000) (hereinafter “Areeda”) at | Sb (“Even relatively easy entry should not
ordinarily be a defense to a sneryer creating a monopolist or dominant firm”). Respondents have no
such evidence.

Contrary to Respondents’ argument, all legal precedent places the burden of establishing
entry upon Respondents. See Olin, 986 F. 2d at 1305 (“[Et is Olin’s burden to rebut a prima facie
case of illegality.""}; Cardinal Health, 12 F. Supp. 2d at 54; Staples, 970 F. Supp. at 1083); Tasty
Baking Co. v. Ralston Purina, Inc.,653 F. Supp. 1250, 1264 .D.Pa. 1987) €[T]he burden of proof
would be on defendants.”). Uiiversity Heaith, the case Respondents cite, says the apposite of whal
they claim. (R.Brief at 12, citing FTC v. University Health, Inc., 938 F.2d 1206, 1220 (11" Cir.
1992)). Indeed, the 11" Circuil explained thal if the governmenl shows high concentration, “a
presumption of illegality arises,” and it is then defendant’s burden to “rebut this presumption.” id.
at 121s?

Respondents have offered several erroncous arguments in rebuttal: (i) efficiencies, (ii) ease
of entry, (iii) a powerful buyer defense, and {iv) unique circumstances.’ Respondents ahandoned
their efficiencies defense at the beginning of trial, and their other defenses fail.

First, the “powerful buyer” argument that Respondents argue is bused on Lheit unsupported

argument that the customers are big, and thus they can keep CBI from raising prices. Respondents

‘Nowhere did the court say that it was the government’s burden to show an absence of
entry or barriers to entry. In fact, when the government did so, as we did in this case, the court
explained that this evidenee was “‘added to its prima facie case,” and that the FIC “bolstered this
prima facie case with evidence” of barriers. fd. at 1219-20.

Respondents also claim what they call an “exiting assct” defense. addressed in Section
TV below.

14


D. None Of Respondents’ Claimed Entrants Are Sufficient To Restore Pre-
Acquisition Prices At Profitable Levels.

Another reason why these alleged foreign entrants are not likely lo have much of an impact,
if any, is that there are significant barriers to entry. As set forth in Complaint Counsel’s Post-Trial
Brief, there is substantial evidence of burriers to entry bere. The most mmporiant one is that CBI has
lower costs than any other supplier, except for the former PDM, which it bought. (Glem, Tr. 4381,
84; CX 1720; CX 1731 at 42), The fact is that CBI can “win the work” whenever they want to,
unless someone bids under their cast. (Glenn, Tr. 4380; CX 1731 at 44). PDM and CBT 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). Insum, these barriers to entry make it unlikely that any potential
competitor, or even a long-time smal] competitor in the ULS., such as ATV, wiil be able to replace
PDM as a competitive force, by filling the capacity that PDM had or by being profitable at pre-
merger priccs at a level that controls CBI’s ability to raise prices.

E. Respondents’ Claims Of Entry Are losufficient As A Matter Of Law.

1, There Is No Entry In TVCs.

Respandents have no valid defense in the TVC market, and thus this Tribunal should find
in favor of Compiaimt Counsel on this basis alone. Rather than try lo show even a chance of entry,
Respondents assert that the court should ignore this market, which involves TVCs between $10-30
tuillion, because it is in their view, too small. First, as a matter of law, this argument is unfounded.
(R.Brief at 1t) There is no de minimiy exception to the antitrust laws. Respondents’ praposed
exception to Section 7, is simply not found in the statute, and is inconsistent with the very purpose
of Section 7. As Areeda’s leading treatise explains: “Congress neither adopted nor rejected
specifically any particular tests for measuring the relevant markets.” Areeda at | 903a. Indeed,

courts have condemned mergers (from grocery store acquisitions to funcral homes) with small effects

31



is such a threat. (CCFF 1053-1057) Morsover, as discussed aboye, CBT has never mentioned to any
one. outside this hearing, that there is any such threat to its business.

In sum, Respondents have simply failed to show that any of this supposed entry is timely,
likely to include profitable entry at pre-merger prices, or sufficient to replace the competition Inst
by the demise of PDM. Thus, based on this faiture of proof alone, Complaint Counsel is entitled to
judgment as a matter of law.

Ti. POST-ACQUISITION EVIDENCE DEMONSTRATES THAT ANTICOMPETITIVE
EFFECTS ARE LIKELY, BECAUSE THEY HAVE ALREADY OCCURRED.

Respondents ignore the actual evidence of anticompetitive effects. Under the jaw, all that
we have discussed thus far in this brief, and almost all that Respondents claim, is surphisage, since
we have proof that this acquisition has caused harm to competition. The sole purpose of HHls, entry
analysis, and expert hypotheses is to predict whether anticompctitive cffects may be likely to occur,
When there is evidence that such effects have indeed occurred, no other analysis is needed. Lifhey,
211 P. Supp. 2d at 49 (“Proof of actual detrimental effects’ can “obviate the need for an inquiry
into market power, which is but a “surrogate for detrimental effects...’’”) (Citations omitted); Zays
“R" Us, 221 F.3d at 937; Consolidated Foods, 380 U.S. at 598. Where there is such evidence that
Respondents have increased price, “the existence of monopoly power is clear” and “cements”
Complaint Counsel's case. United States v. Microsoft Corp.,253 F.3d 34, 51 (D.C. Cir. 2001); Von
Kalinowski at § 4.03[4} (Citations omitted).

And there is more evidence of anticompetitive effects here than Complaint Counsel can find
in any prior FTC case where divestiture has heen ordered. Anticompetitive effects have actually
tumed up here in spades: CBI has colluded with a potential competitor and prices and margins have
increased dramativally. Under the law, if Complaint Couuset 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

51



LNG tank price only [

= jin camera). Skanska‘Whessoe

quoted to CMS a price of approximately [ ], or about 10% higher than
CHI’s price. ([ | in camera). Skanska/Whessoe’s quote to CMS was essentially
the same as Whessoe’s carlicr quote to [ ] for a 140,000 cubic meter, single
containment LNG tank. (RX 157 at [ ] in camera), [ ] in camera).

‘Thus, in comparison with CBI's high Cove Point price and the even higher price from Whessne,
C8Ps price to CMS looked preity good.

But CMS, of course, doesn’t know that prior to the acquisition, CBI had quoted to[ _]a
price of j ] for basically the same kind of tank. (RX 157 at [ ] it camera).

In fact, CBI’s price to CMS forthe tankis[ higher than the price CBI quoted for that size tank

prior to the acquisition. [ 31 ] CBI is getting
nearly three times the profit on [ jjob as it would have when PIM was compeling.
(See [ ] in camera (Using [ ] as a benchmark); [

Jin camera){Profit margin on [ ] went from about [ ] sith competition

to over | ] without}. Thus, sophistication docsn’t help if you can’t see what the competitive
priccis because the only real competitor to CBI has been eliminated. That’s why the companies who
know they’ve been hosed ([ ] TRW, Linde, and Memphis G&W), are those who had pre-
acquisition bids to compare with those, post-acquisition.

Second, Respondents also claim that this Tribunal should consider the “unique coonomic
circumstances” ofa “deteriorating” market post-acquisition. (R.Briefat 10-11) This argument makes

little sense considering that CBI is making more money today than it ever has. (CX 1731 at 4, 28)

17



CHT into “two separate companies.” (Sawcbuck Tr. 6066) His answer was clear: “I think we would
have to see the final outcome and how it was — how it was finally sct up.” (d.) His only concern
in the deposition (Respondents did not call him live} was whether CBI would have “to split one
person in balf when they may have one or two — only have one or two people in certain disciplines.”
(Sawchuck, Tr. 6077-6078) But there is substantial evidence in the record that CBI has no such
limits on its personnel, Glenn lestified that “We probably have about a thousand graduate engineers
in the company. We may have a thousand people in the company that in some way are designing or
enginceting projects around the world. i don’t have an accurate number, but it is a large number.”
(Glenn, Tr. 4356) Likewise, CBI's internal documents clearly illustrate that not only does CBI have
sufficient resources not to be concerned with having lo “splil one person inlo two,” bul has eight
times the field resources of ATV or Matrix, which Respondents claim can compete as they are. (CX
460; CX 1654)

Fifth, Respondents also claim that since they have over 2,000 contracts, a break up will affect
them all. (R. Brief at 170) All this proves is that there is plenty uf business to keep the new PDM
busy.

Fiaally, Respondents claim that a divestiture would not create lwo low-cosl companies, Yet,
their only support for this assertion is Dr. Harris’ claim that there is no evidence that he’s seen to
“suggest that’s true.” (7d. 171, Harris Tr. 7367-68) Perhaps Dr. Harris should look af (he undisputed
evidence that both CBI and PDM were the lowest cost competitors before the acquisition.
Nevertheless, the law is that “lhe Commission need not justify its order beforehand by showing” that
a divestiture “will unquestionably restore competition.” Diamond Alkali, 72 F.1.C. at 742.

Respondents’ claims of future woe are not unprecedented. In at least two other cases, the

Commission has considered the risk that a divestiture order might weaken the resulting competitors.

84



] im camera) Thus, to claim that Technigaz has now replaced PDM
in arly way ts baseless.

Other so-called e nirants, such as Daewoo ot Tractebel, IHI or MHI surely build tanks
elsewhere in the world, but there is absolutely no evidence that they will enter the United States LNG
market in a timely fashion (indecd, they already have missed the two-year window) with priccs that
are profitable and sufficient to drive prices down to pre-merger levels.

In short, Respondents’ LNG story is that there are foreign firms that may be interested in
competing here, and since they can make tanks in Korea, Trinidad, or Affica, this Tribunal should
ignore CBI’s acquired dominance, where, as their CEO stated, CBl can “win” these projects any time
they want. Their arguments for low entry are mostly recitations of these companies’ ability to build
tanks. No evidence offered by Respondents deals with the economic issue of whether the foreign
firms can compete profitably at pre-mnerger prices —the key issue here. Without such an ability, they
will simply compete at CBI’s higher priec level, which harms customers.

One of Respondents’ most transparent claims is that “Double and full-containment tanks...are
the wave of the future,” and as such CBI has no competitive advantage. (R-Brief at 47).
Respondents omit the fact that PDM is the only company that ever built a double or full containment
LNG tank anywhere in the United States since 1971. (Seorsanc, Tr. 4831, 4920, CX 125 at PDM-
HOU 2017164} Moreover, Respondents mischaracterize the extent to which LNG customers “sec
a trend toward double and full containment tanks in the United States.” Respondents cite Messrs.
Izzo and Cutts, neither of whom have ever been involved in the construction of an LNG tank in the
United States, and, in the case of Mr, Cutts, has not been involved in the construction of an LNG
tank anywhere. (Izzo, Tr. 6513-14; Cutts, Tr. 2393-94). Mr. Izzo testified that Calpine has not

decided what type of containment system it will build, and if FERC authorizes the construction of

38


in 1914, never once mentioning that Complaint Counsel had this alleged burden? In short, the
standard advocated by Respondents simply docsn’t exist under the jaw

Rather than seek less than divestiture, the Cuzamission has consistently erred on the side of
adding more remedies in addition to divestiture. Ofin, 113 F.T.C. at 619, 585 (the CA facility must
be divested together with a related ISOS facility im order “to cnsure the viability of the divested
entity” as an ISOS producer — “Anything less [would] be a divestiture in name only and would” not
restore competition); Ekco, 65 F.T.C. at 1217 (Ordering divestiture to “recreate a viable concern”).
Tn short, a complete and broad divestiture js the appropriate remedy to successfully restore a viable
competitor to the marketplace. Anything less will be ineLective.

E. There Is Suhstantial Evidence in the Record to Guide the Tribunal in Ordering
Divestiture to Remedy the Effects of the Acquisition if a Violation Is Found.

Respondents crroncously assert that Complaint Counsel has some burden to show that
divestiture is appropriate here and 1o disprove that Respondents’ mentoring remedy would be less
desirable. Nevertheless, as set forth in Complaint Counsel’s initial brief, there is ample evidence in
the record establishing the need for complete divestiture to remedy the effects of the acquisition.

Respondents claim that Complaint Counsel “failed to ask any” witness whether it would be
beneficial 1o have PDM compete against CBI once again. (R. Brief at 162) Not true. Several
witnesses testified as to the desirability of Complaint Counsel’s proposed remedy. (Neary, Tr. 1489,
1502) (Reestablishing PDM would give his company the “competition” they’re “looking for”);
(Simpson, Tr. 3606-09) (PDM EC was as strong a competitor as it was because it possessed certain

tangible and intangible assets), Numerous witnesses were asked what the bencfits were in having

79



making a decision based on a budget price’). In putting together a proposal for an LNG peak
shaving facility, Praxair decided to work with another contractor to develop the project based on
CBI’s budget price being substantially higher than theather supplier’s price. (Harris, Tr. 7634). Dr.
Harris concluded that Praxair compared CBI's budget price to another supplier's finn bid. (Harris,
Tr. 7635-36).

Respondents claim repeatedly that BOC’s Oregon LIN/LOX tank job was “competitively
bid,” yet they fail to mention that that competition was based on budget prices. (R.Bricf at 99-100,
111, 118). Kelly of BOC confirmed that “costs were solicited and ATV had the low bid.” (V.
Kelley, Tr. 5292). The only bid submitted by CBI was a budget price. (Scorsone, Tr. 5017-18).
Thus, these budget prices are indeed relevant.”!

D. Post-Acquisition, CBI Discourages Competitive Bidding.

Respondents a yree that b udget prices are usually the first round o [prices provided by
competitors. (R-Brief at 128) (“The evidence shows that the more rounds of bidding and/or pricing
that oceur, the lower the prices go”). Yet, with its new-found clout, CB1 now can simply offer a
budget price, be selected, and forgo any further competition. C BI gives the budget prices to

customers to “meet their requirements that they have some sort of competition before they select

TM Respondents’ assertion that budget prices do not reflect actual costs savings CBI
realizes on a project misses the point— [

] Gcorsone, Tr. $334 in
camera}. In fact, [ J
(Scorsone, Tr. 5337-5339 in camera). Delay of the Cove Point LNG tank enabled CBI to
“strctch” the margin on the project by lowering its cost. (CX 1617 at CBE 061611 (The Delay
allowed the Project Team to implement Best Practices that might not have been able to
implement if the schedule had heen tighter.”)). CBT’s Luke Scorsone presses his staff to identify
ways to “stretch” CBI's margins after a project is awarded to CBL (CX 1617 at CBI 061612
(“We need from you the amount of margin in cxcess sold that will be ‘stretch’ for you to
deliver.”)).

36


PDM compete against CBI. In addition, many customers testified that it helped their company to have
PDM compeie against CBI and that PDM’s absence hart them.TM

But Respondents miss the point entirely. Thisisn’t amatter fora vote. Divestiture is required
under 11{b}. The only thing under consideration is whether the divestiture should be partial or
complete and whether additional relief should be granted, In their quest to prove that any kind of
divestiture is not warranted, Respondents fail to challenge any of these retevant remedy issues.
Instead, they misvile testimony to argue that any kind of divestiture would be bad. Their usual trick
is to take a broad question ina deposition, like “what if CBI were split into bwu companies,” or “what
if CBI were cut in half” etc., and then take the answer lo mean thal any kind of divestiture would be
harmful, Even then, Respondents mislead this Tribunal with snippets of deposition. That, of course,
is why we asked for live testimony at the outset of this case. For example:

First, Respondents argue erroneously that any kind of divestiture will “not create competition,
and that it will harm consumers.” (R. Brief at 165) Respondents highlight their argument with their
first example, Hilgar, who they claim testified that any “divestiture would be ‘bad for Air Products’”

(R. Boel al 165, quoting Hilgar Tr, 1540) Sounds pretty clear— but here’s the actual testimony:

* See, e.g., Neary, Tr. 1502 (TVC competition would be restored if PDM LC were
returned to the marketplace); Gill, Tr. 212, 213 (CBT and PDM competition lowered prices to
customers); Gill, Tr. 211 (post-acquisition pricing for these chambers “can’t be as good” as when.
two suppliers are competing for these projects); Thompson, Tr. 2051 (Spectrum Astra
competitively bid the project, because “we wanted obviously to get the best price we could get”):
[ ] 4a camera ([ ] was able to use the close competition between CBI
and PDM to lower the price of a TYC); Hall, Tr. 1804 (CBI and PDM provided “very
competitive” supply options.); Price, Tr. 558 (the two competitors with the lowest prices were
CBI and PDM), Warren, Tr. 2304, 7-8 (the only compelitors available were PDM and CRI, hy
leveraging Respondents against each other, Fluor cbtained a lower LPG tank price); {

], i# camera (“not having a PDM bid took away — took away what could have
been the lower — lower price [ ]}; Crain, Tr. 2592 (CBI lost some projects to
PDM because of PDM's “very low” pricing levels}, Kistenmacher, Tr. 876 (the merger has
“Teduced Lae number of vendors, experienced vendors from prior to Graver gomg out of
business, we had three experienced, with PDM we had two, and now we have one”).

80


to overcome the presumption of anticompetitive effects, unless those competitors ate sufficiently
cupable of restoring the lost competition. As the District Court stated in Cardinal Health:

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

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

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

into the market would not be sutficient to offset any post-merger pricing practices

that would result from the lack ofcompetition. fhe record developed at trial is not

strong enough for this Court to conclude that the Defendants’ claim of entry and

expausion is sufficient to rebut the Governmeni’s prima facie case.”

12 F. Supp. 2d at 58 (D.D.C. 1998) (emphasis added). See Staples, 970 F. Supp. at 1087-88
(Although other firms sold office supplics, they were not “likely [to] avert the anti-competitive
effects resulting ftom Staples’ acquisition of Office Depot.”), Swedish Match, 131 F. Supp. 2d at
170 ¢“[D]efendants have been unable to substantiate their projections of [entry] by introducing any
historical evidence to this effect. In fact, newly intreduced...brands...have had marginal success at
oblaining market share and at best a nominal effect on constraining the prices of existing brands of
loose tcaf.”); Coca-Cola, 117 F.T.C. at 960 (Defendant must show that entrants can “sufficiently
expand output to prevent existing producers from raising prices,” otherwise “their entry will not be
sufficient to preyent a cartel from raising prices.””}.

To rebut Complaint c ounsel’s prima facie case, Respondents must establish that these
companies would have the capability to compete as effectively against CBI as PDM had, See Coca-
Cola, 117 F.T.C. at 953 (To be ‘sufficient’ entry must be able to restore competilive pricing -- ic,
it must be effective in offsetting any loss of competition due to the business combination in
question.”). Since this merger created a “dominant firm,” even “relatively easy entry” would not
“ordinarily be a defense.” Areeda at J 1 1b.

In short, Respondents’ denial of the rclevant test -- timely, profitable at pro-merger prices,

and sufficient -- as well as their lack of any evidence on these points lead to only one conclusion:

25


INTRODUCTION

Respondents’ brief reads as if they were not present at the trial. In 173 pages, all they could
muster in defense against overwhelming evidence of anticompetitive effects js a few paragraphs of
unsupported denials. Often misciting the law, most of their brief instead attempts to chanye the legal
standards that apply to this case; the rest is devoted to a lengthy argument that several companics
elsewhere in the world can build cryogenic tanks. Yel, substantial evidence shows that no company
has restrained CBI from raising prices and margins in the United States, and thus, as a matter of law,
CBI’s illegal acquisition must be undone.

InTV€s, CBlis simply a monopolist. Whatever price competition CBI might have received
trom Howard, it quickly eliminated. As the customer, Mr. Neary said, “we're basically hosed.”
(Neary Tr. 1451) And since CBI insists that a divested company must be large, the public is entitled
to a complete divestiture on the basis of this evidence alone. This Tribunal should take no comfort
in Respondents’ claim that it won’t increase prices in TVCs “because it has voluntarily restricted
ilself to seeking no more than a four percent margin.” (R. Boefat135, 1.26) After raising prices
and margins; after colluding on prices in LNGs and TVCs; and after taking out its closest competitor,
the most CBI can offer in response is “Trust us we won't do il agaia.” This isn’t enough.

Throughout the trial, substantial evidence has made it abundantly clear that (i) Complaint
Counsel has proven its prima_ facie case; (ii) Respondents fail to rebut that case with any showing
that other competition is replacing PDM as a competitive force, profitably at pre-acquisition prices;
and (iii) Complaint Counset has offered undisputed evidence of anticompetitive effects thal prove

that no other competition can restrain CBPs anticompetitive behavior in the way PDM could. We

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Respondents’ own documents and admissions support the fact of barriers, as detailed in
Complaint Counsel’s Post-Trial Brief at 22-26. For example, contrary te Respondents’ claims, Mr.
Glenn does not tell his investors that reputation, welding and engineering capability are not harriers.
Much to the opposite, Glenn assures his investors that it is these very things that will ensure CBI’s
future profitability. In an investors conference call on October 31, 2002, Glenn addressed the
competitive landseape and clearly indicated that not only do these barriers exist, but that CBI relics
on these barriers to give them a competitive edge. Glenn told his investors that, particularly on “LNG
project[s]” CRT has a better “track record” than ather competitors who may have “shoddy welding”
ordoa“second-class job.” (CX 1731 at 44-45); see other testimony on this point Cutts, ‘fr. 2379-80;
Kistenmacher, Tr. 881-82; Fahel, Tr. 1628-29, in camera), CCFF 326. Morcover, contrary to
Respondents’ claims, Glenn admits that an LNG project or LNG tank is “very specialized, very
sophisticated” work CB] does. (CX 1731 at 44-45) The plan was to “create barriers to entry” and
charge premiums, i.¢. raise prices (CX 101).

Since Respondents could not actually find any cntry in the United States, they claim that one
could look at the Trinidad bid contest off the coast of Venezuela to “provide[] a natural experiment
that sheds tight on whether such barriers actually cxist.” (R.Brief at 59} This makes no sense for
many teasons, First, Eycrman stated the obvious when he explained that one cannot compare
foreign tank projects to those in the United States. (Eyerman, Tr. 7071). Second, Whessoe built the
first two out of the four tanks years ago, which begs the question why that shouldn't indicate that
Whessoe could have won a bid in the United States? We know the answer to that because it did bid
on the Memphis project at almost the sume time aad was almost 50% higher than CBL Finadly,
TKK may have won (there was no actual evidence that anyone won, just “state of mind testimony”)

simply because CBL raised its price, increasing it charges for material and other costs in addition to

40



Federal Trade Commission Act, -
Section 5, 1SUS.C.§ 18 2 cece cece terete nsec eeeseeee passim

OTHER ACTHORITIES:

2A P. Areeda, H. Hovenkamp & J. Solow, Antitrust Law, (2002)
i 95» 24

4P. Areeda, H. Hovenkamp & J. Solow, Antitrust Law (rev. ed, 2000)
aa dT: a 34
qellb. .
9 952B occ cece cece ec eed eee cececeececeeeteesecyasererenees

Dalkir, et at., Mergers in Symmeiric and Asyinmetric Noncooperative
Auction Markets: The Effecis on Prices and Efficiency,
2000 fnt’] J. of Industrial Orgamzation 1B 0 eee ae tee eee eee 60

Kovacic, William E., Merger Policy in a Declining Defense Industry,
36 Antitrust Bull. 543 (1991) 2.2 ec reree r teeter errs 12

Kwoka & Warren-Boulton, Efficiencies, Failing Firms
and Alternatives to Merger: a Policy Synthesis,
31 Antitrust Bull. 431 (1986) 02.6... ec cece ee eee teeters 62, 64, 68, 69

Posner, R., Antitrust Law An Economia Perspective (\976) 2.2.2... 22-22 ee eee 61

US. Department of Justice & Federal Trade Commission,

Horizontal Merger Guidelines (1992, rev'd WOT) oe eee ees passim
Von Kalinowski, J., Antitrust Law & Trade Regulation (2d ed. 1996} .........-..4- 5, 13,51
Wonnacoll, R., and ‘I, Wonnacott, introductory Statistics (4" ed. 1985)... 2.00.02. . 22 ee 61



e-mail recites the need to [ 7 ] Ud.; see aise Gill, Tr.
212, 213 (CBI and PDM competition lowered prices to customers).'*

In short, CBI and PDM competed aggressively for the TVC business in the past. Now, that
PDM is gone, CBI has increased dramatically the prices it quotes to customers. (CCI'F 1207-1215).
And it has asked the only bidder on a TVC project to collude on a current bid. (CCFF 1165-1180).
There is no defense for Respondents here, and thus this Tribunal should grant the proposed remedy
in this case based on the Iessening of competition in this market alone. See Ekco, 65 F.T.C. at 1229
(Ordering reconstitution of product line for divestinre); Olin Corporation, 113 F.T.C. 400, 620-624
(1990) (Ordering divestiture of small product linc, as well as another product line that was not at
issue, so that divested company could fully compete).

2. Respondents Have No Proof Of Entry In LNG.

Most of Respondents’ post trial briefis dedicated to attempting to depict an LNG tank market
that is just filled with now entry. Respondents’ main thrust is that other companies and consortiums
such as Skanska’Whessoe, Technigaz/Zachry and TKK/ATV are big, qualified, and have past
experience in building tanks. (R-Bricf at 21- 41). However, this type of evidence, no matter how
many times they state it, falls far short of the mark. Complaint Counsel has never taken the position
that these companics do not have the capability to construct LNG tanks. What is lacking is a

showing that these companies can and would compete profitably at pre-meryer price.

‘Inexplicably, CBI denied having made a TVC mailbox chamber in the past. This is
misleading. They made a mailbox-shaped chamber, and they boasted about their ability to make
il, In August 1998, CRI in foomed Orhital Sciences: “CBI built a mailbox-shaped vacuum
chamber for Grumman Aerospace in Bethpage Long Island which included a complete gaseous
nitrogen shroud similar to Orbital’s baseline requirement.” (CX 1220 at CBI-PLO13372).
Moreover, CBI told TRW that it could build the large, mailbox-shaped TVC which TRW plans
to construct beginning in 2004, (Neary, Tr. 1452, 1500-01).

34


Techsystems, 808 F. Supp. at 24 (D.D.C. Noy. 23, 1992) (Enjoining merger of competitors of
ammunition for Abrams tank before sales ever look place); Grumman Corp., 527 F. Supp. at 106
(Enjoining merger between defense contractors for attack aircraft cven though one had not sold any
products for years}.

Finally, this Tribunal should reject Respondents’ one-sided argument that post-acquisition
evidence is only useful to show pro-competitive behavior in the market, despite the U.S. Supreme
Court having heid tiat such evidence is pretly useless, except when il shows that the respondent
actually did something, post-acquisition, that is anticompetitive. Indeed, the Court explained that
“post merger evidence showing a lessening competition may constilute an ‘incipiency’ on which to
base a divestiture suit.” General Dynamics, 415 U.S. at 505, 1.13: Von Kalinowski at § 4.03[4],
citing Lektro-Vend Corp. v. The Vendo Co., 660 F.2d 255, 276 (7" Cir. 1981) (|Pjroof of post-
acquisition anticompetitive cffect cements the plaintiff's case.” }.

Tn sum, the acquisition has increased the conceninilion in each of the relevant markets lo
extreme HHI levels of [ } to 10,000 — the level of “pure monopoly.” Merger Guidelines § 1.5,
m.17, When one compures these HHIs to recent decisions where the ETC hus prevatled, ilis apparent
that Complaint Counsel's burden of proof has already been met overwhelmingly.”

i. RESPONDENTS FAILED TO REBUT THE PRESUMPTION OF
ANTICOMPETITIVE EFFECTS.

Once Complaint Counsel has established a strong prima facie case through statistics, lhe
burden shifts to Respondents to provide similarly strong evidence to rebut the presumption of

anticompetitive effects, General Dynamics, 415 U.S. at 497-98; Baker Hughes, 908 F.2d at 991

"See, e.g., Cardinal Health, 12 F. Supp. 2d at $4 (D.D.C. 1998) (2,224 HHI}; Swedish
Match, 131 F. Supp. 2d at 167 (4,733 HAM); Heinz, 246 F.3d at 716 (5,285 HHI); Libbey, 211 F.
Supp. 2d at 47 (5,251 premerger HAT}.

13


tejected this theory repeatedly. Z.z., United States v. El Paso Naturul Gas Co., 376 U.S. 651, 661
(1964) (Holding that “[u]nsuceessful bidders are no icss competitors than the successful one” and
ordering divestiture even though acquired company had not made any sales, but had only bid); FTC
vy. Alliant Techsystems, Inc., 808 F. Supp. 9 (D.D.C. 1992) (Enjoining merger of competitors of
ammunition for Abrams tank before sales cver taok place}, Grumman Corp. v. LTV Corp., 527 F,
Supp. 86(E.D. N.Y. 1981) (Enjoining merger between defense conuactors for attack aircraft even
though one had not sold any products for years). Even under Respondents’ theory. however, these
HHis, still prove “by a wide margin” the likelthood of anticompetitive effects. Heinz, 246 F.3d at
716 (pre-merger HHis over 4,775); Merger Guidelines § 1.51.17. Indeed, itis a bit ridiculous for
Respondents to say that foreign competitors, who never won any business here, are in the murkel,
but that CBI, who competed and won projects, is not.

Respondents misstate the law when they say that Complaint Counset has ta show more than,
high concentration for its prima facie case. In the most recent pronouncement of the burdens of
proof, ignored by Respondents, the D.C. Cireutt plainly held that “[s]u(liciently iarge HHE figures
establish the FTC's prima facie case that a merger is anti-competitive.” Heinz, 246 T.3d at 716
(Citation omitted). Indead, the very system of HHI analysis thal Dr, Harris and Respondents erilicize
is cxactly what the Heinz court used, and every court and agency have used since the Merger
Guidelines have been published— cyen those that Respondents erroneously cite for this proposition.
See id..n. 9. Even the case they cite about the Guidelines not being “binding,” /7C v. PPG Indus
Jnc., 798 F.2d 1500 (D.C. Cir. 1986) (Bork, J.}, used the HHI method, holding: “There is noe doubt
that the pre-and post-acquisition HHI’s and market shares found in this case entitle the Commission

to some preliminary relief" 72. al 1503,



FTC v. University Health, Inc.,

938 F.2d 1206 (11% Cir. 1992)... cece cee cece teen ee eens
FIC v. Warner Communications, Inc.,

742 F.2d 1156 (9" Cir, 1984) cece cece rere teen ete eee eens 68
FTC v, Western Meat Co. 272 US. S54 (1926) oo ccc ceeccecceeeceueeussecueevaeeeees n
Grand Union Co., 102 F.T.C. 812 (1983) oo. cece eee ere eect renee eee eens 74
Grumman Corp. v. LTV Corp.

527 F. Supp. 86 (ED. N.Y. 1981) 0.2. eee ees 8,13
Grumman Corp. v. The LTV Corp.,

665 F.2d 10 (2d. Cin DOBD) eect e eee n eee nees 32
Heubiein, Inc., 96 F.T.C. 385 (1980) 2.2.0. ee ee ee cee eee eee eee 29

Tnt'l Distrib. Ctrs., Inc. v. Waish Trucking,
812 F.2d 786 (2d Cir. 1987}...

dim Walter, 90 F.T.C. 671 (1977) oe eee cee cnet erent en erences eeeeee 75
Lektra-Vend Corp. v. The Vendo Ca.,

660 F.2d 255 (7" Cir. 1981)... .- Peden ee eee ee ee eee eee e eee ee ere 13, 61
MeGahee v. N. Propane Gas Ca.,

858 F.2d 1487 (11th Cir, 1988) 0... c cece eee ec ec reece rues cc teeeeeeeeee 30
Mercantile Texas Corp. v. Board of Governors

of the Federal Rgserve System, 638 F.2d 1255 (5 Cr. 1981) ........--2--------- 27
New York v. Kraft Gen. Foods, ,

926 F. Supp. 321 (S.D. NY. 1995) 22 eee eters eee 9
Olin Corp. v. FTC, 986 F.2d $295 (9 Cir, 1993) 00. cece eee cee eee 2, 9, 14, 62, 64, 68
Olin Corporation, 113 F.T.C. 400 (1990) . 0.2... ene ee eee eee 34, 62, 69, 75, 78, 79
Pillsbury Co.. 93 FLUC. 966 (1979) 6 eee eens 18
RR. Donnelly & Sans Co, 120 F.T.C. 36 (1998)... cece cece cece eee seer ees 52

Rebel Oil Co., Ine. v. AtlanticRichfield Co..
51 F.3d 1421 (9° Cir, 1995) eect ttt e et etre ree teens 20, 28

vi


First, Respondents have failed to prove that CBI is “the only available purchaser” for PDM’s
EC and Watcr Divisions and that they have conducted an “exhaustive” search for alternative buyers.
4d. a 1307. Glenn admitted on cross-examination~aat PDM could have sold the EC and Water
divisions to “any number of competitors.” (Glenn, Tr. 4262). Scheman testifiect thal once CBI was
identified as a “preemptive buyer...we didn’t go down the route of calling other people.” (Scheman,
Tr. 2931, 2939-40). The reason they only went lo CBI was, as Glenn lestified, PDM was worth more
to them than to anyone else. (Glenn, Tr. 4261; Scheman, Tr, 2967-68 (“It was unlikely that someone
could match [CBI’s] price...because any other buyer would have lo compete with CBI’}).

‘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 CBI’s CEO, and they
made the deal that would give both the most value. Indeed, IDM even rebuffed expressions of
interest from other prospective purchasers. (Scheman, Tr. 6930; Vetal. ‘Ir. 418-423) Byers also
admitted on cross-examination that o ther companies w ould have been interestedin buying the
divisions, and yel there was no evidence that anyone else was ever contacted. (Byers, Tr. 6799, 6858,
6806-6812; DX 29 at PDM-C 1006327 (Even as of closing, “few potential buyers,” and “some
competitors might be interes led” in buying the EC division). PDM’'s CEO even promised the Board
that he would contact other purchasers if the CBI deal fell through. (Byers, Tr. 6864; CX 1590 at
6065} ‘They just never did. They just went to the buyer with the most money to offer. (Byers, Tr.
6796) Quite clearly, thercforc, PDM has not made a “clear showing” that it “undertook a well
conceived and thorough canvas of the industry such as to terret out viable altemative partners.”

United States v. Pabst Brewing Co., 296 F. Supp. 994, 1002 (E.D. Wis. 1969), guosed in Areeda at


And Respondents offer no evidence to suppor. this claim, ‘The other argument about cither PDM
or CBI being weak doesn’t match any facts in this case, since they were undisputedly the stronyest
competitors in the markets. (R.Brief at 11, citing United States v. International Harvester Co., 364
F.2d 769, 776-79 (7* Ctr. 1977)) But even Iniernutional Harvester does not help Respondents,
because the weakness there of the target company could only be solved by the merger to help both
companics compete more strongly against existing competition. /@. That can hardly work in this
cise where there is no other serious competition te compete against CBL

Respondents should have cited the ety Commission opinians on point, which have rejected
Respondents’ interpretation of international Harvester. Pillsbury Co., 93 F.T.C. 966, 1038-1039
(1979) (“[W Je conclude that if Jrernational Harvester reads General Dynamics to extend to a wide
array of instances where ‘financial weakness’ constitutes a defense for otherwise clearly illegal
mucrTgers, we respectfully decline to follow it,” declining to expand the “failing firm” defense).'

Finally, most of Respondents’ brief covers their assertions of foreign “entry” — even though
none of these have ever came close to winning any project against CBI in the United States. The
further problem with their entry story, however, is that they fail to even address any of the three
elements of (he defense;_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 FTC. at 953 (Entry “must be

ablc to restore competitive pricing — i.e., it must be effective in offsetting any loss of competition

Respondents’ citation at p. 24 to FTC v. National Tea Co., 603 F.2d 694, 699-700 (8th
Cir. 1979) for a “weak” company defense docs not apply here. In that casc. it was proven that the
combined companies would only have a 14.2% markct share, and thus any exit from the market
by the target company would be picked up by the “vigarous competition” from other grocery
stores, which would have actually made the market more concentrated. Jd, at 701. Thus, the
merger was no worse than that.

18



Respondents failed to mention any of these cases — the most recent holdings from the courts in the
D.C, Circuit that discuss the Merger Guidelines. Indecd Respondents fail to cite any Commission
case after 1991, which would have used these Guidelines.

Since lhe acquisition and with competition eliminated, CBI is still the lowest cost provider.
No one else comes close. As Mr, Glemm told his investors, “we van still be low bidder and make
more moncy” than the competition and “win the work” at will, unless someone bids under cost.
(Glenn, Tr, 4380-81, CX 1734 at 42,44) The Merger Guidelines teach that a “merger involviig the
first and second Jowest-cost sellers could cause prices to tise to the constraining level of the next
lowesi-cost seller,” Merger Guidelines § 2.21,0.2i, Heinz, 246 F.3d at 717 (When two competitors
competed for the lawer price position, itis simply “an indisputable fact that the merger will eliminate
competition belween” Lhem, and it would seem obvious that prices would rise).

Unlike Indge Henderson in Heinz, this Tribunal need not decide whether higher prices are
likely to occur -- they have. One of the clearest examples is the history of prices at Cove Point.
Prices and margins went down when CBLand PDM competed; they went up when CBI dropped out;
they went up again when CBI bought the contract and eliminated PDM. CBI's prices then inercased.
towards (he nexl lowest competitor’s price. The alleged new competition didn’t resi CBI one
bit. For example, pre-acquisition, Whessue’s price was about 78-90% higher than CBI’s. Since the
acquisition, Whessoe’ pricy is unchanged, bul CBI's price has increased to a point where Whessae’s
price is only 10% higher than CBI’s. [, ] Thus, the uncontested facts
prove that, CBI has nov raised its prices and margins far above where they were pre-merger — and

yet CBI's prices are sti]| substantially lower than those of its alleged competition.

Guidelines 0.21 (“A werger involving the first and second lowest-cost sellers could cause prices
io rise to the constraining level of the next lowest-cast gcller.”}.

4


(Scorsone, Tr, 5036) ATV's capacity is also so small that just recently it had to tum down two
projects and could not get proper bonding for “larger jobs.” (Cutts, Tr. 2366, 2375)

Incase after case, the Commission and courts¥rave found that potential expansion by smaller
competitors like ATV was not sufficient to overcome the presumption of anticompelilive effects
from mergers creating leading firms with large market shares. Coca-Cola, 117 F.T.C. at 960 (“If
hew entrants cannot sufficiently expand output to prevent existing producers from raising prices,
their entry will not be sufficient...”); Cardinal Health, 12 F. Supp. 2d at 58 (The “absence of
another national” competitor through “merger is too great 4 competitive loss — which the [smaller
competitors] cannot sufficiently replace.”); Staples, 970 F. Supp. at 1087-88 (Other less-dominant
companics were not “likely to avert the anti-competitive effects resulting from Staples’ acquisition
af Office Depat.”); Swedish Match, 131 F. Supp. 2d at 170 (D.D.C. 2000) (Effective expansion by
smaller firms was “highly unlikely’).

Despite the fact that well-settled case law cicarly establishes Respondents’ burden to rebut
Complaint Counsel’s prima facie case, Respondents nevertheless complain that it would be unfair
to require them actually to demonstrate that entry would be sufficient to restore competition.
Brief, at 12-14). Respondents assert, rather, that if they can point to the presence of any firm and
describe that firm as a “new entrant,” that evidence will be sufficient to rebut the prinra facie case,
no matter how strong. (R.Brief at 9, 26). They are wrang. As the Court of Appeals explained in
Baker Hughes, the ultimate issuc is whether entry “would likely avert anticompetitive eflects from
[the] acquisition.” Baker Hughes, 908 F.2d al 989. Contrary lo Respondents’ argument, therefore,
the fact of cntry does not, by itself, rebut a prima facie case.

Respondents must be able to demonstrate that competition from other firms will be sufficient

to maintain the competition that PDM had provided against CBL See United States v. Franklin Elec.

23


1990 WL 198819
(Cite as: 1990 WL 198819, *2 (D.D.C.})

ULS. 291 (1930). The defense is to be narrowly
coustrucd, see Citizen Publishing Co. y. United
States, 394 U.S. 131, 139 (1969) ("[w]e confine the
failing company doctrine to its present oaruw
scope."), and the party seeking protection under the
defense bears the burden of proof.

Subsequent io its decision Internasionat Shoe,
the Supreme Court hag reiterated the necessary
standard to successfully invoke the defense. A
company invoking this defense must show that "its
Tesources fare] so depleted and the prospect of
rehabilitation so remote that it fared the grave
probabilily of a business failure ... [and] that it tried
and failed 10 merge with a company other than the
acquiring one." U.5. v. Genera! Dynamics Comp.,
415 US. 486, 507 (1974), (internal citations
omitted), The defense will not succecd "unless it is
established uhat the conmpany thal is acquiring the
failmg company or brings it under dominion is the
only available puychaser.’ Citizen Publishing Co,
y, United States, 394 U.S. 131, 138 (1969). [FINA]

Prohability of Business Failure

The parties contest how close Meade is to business
failure. indeed, they shurply contest what
measuremems the Court should use in decidmg
whether or not a company is near failure.

Harbour Group acquired Meade on December 18,
1986, purchasing approximately 86% of Meade’s
oustanding shares from its owner, president and
chief executive officer, John Diebe], for a purchase
price of S6.5 million, [FN5] The principal lender
for the Meade acquisition yess the Bank of Boston.
Harbour Group used the assets of Meade as
collateral for its loan from the Bank of Boston.
Meade remains -mdebted to the Bank of Bastion for
Just over $4 muilion at this time, Harbour Group
- claims that the Bank of Boston intends to call in its
loan at any momem. The FTC counters that
Harbour Group has produced no evidence directly
from the Bank of Bostan that the loan will be called
in irmmodiatcly. [FN6]

The telescope industry has experienced an across
the board decline in business ever since the public's
interest in Halley's Comet waned in 1986.
Meade’s operating profits reached their highest
pomt in fiscal year 1986. Foliowing 1986,
Meade's sales declined. Its wperaling profits for

Page 2

the first part of this fiscal ycar showed a loss,

Cerainly Meade is not experiencing the best
figancial health at this time. Its sales are down, it
holds considerable debt, and its future is uncertain,
Despite these difficulties, the Court fimds it
uunevessary to decide how viuss Meade must come
to financial failure before it can be considered to br
facing the “grave probability of a business failure,”
since Harbour Group failed to demonstrate that the
merger is the “only available” altemative opcn to
Meade. {FN7)

Only Avaiinble Purchaser

*3 The burden is on the parly claiming entilement
to the defense that the acquiring company is the ”
oniy available purchaser, Citizen Publishing Co.
v, United Stat. 394 U.S. 131, 138 (1969)
{emphasis supplied). The "onJy" suggests that the
burden on the defendant in proving compliance with
this requirement is quite heavy. The Ninth Circuit
has stated that “merely proving that some ur all of
the most logical purchasers have declined is not
enough to prove that the challenged purchaser was
the only prospective purchaser <rolden Grain
Macaroni v. Fi 472 F.2d 882, 887 (9th
Cir.3972}, citing Untied States v. Greaier Buffaie
Press, Inc., 402 U.S. 549 (1971).

In US. v. MPM, 397 P.Supp. 78
(D.Colorado 1975), the District Court fownd that
the failing company defense had been established by
the acquiring company. In it review of the
company’s efforts to find additional saurces of
funding, the Court found that the company explored
“virtually every potential source of funding."
{FN8] The company's presidem had contacted
numerous firms, gOveTnment agencies, and persons,
One of the main stockholders “devoted substantially
all of his time toward the task’ of - exploring
investment and sales prospects after the Bank
threatened drastic action if new fonds were not
faised immediately, He participated in approaches
lo as many a$ 12 persons in an effort to save or sel]
Mobile." 3d. at 100-102, The Court found that
the “officers of Mobile conducted an earnest, wide~
Tanging, and good faith effort ta locate potential
investors or purchasers in order to maintain Mobile
asa going concern, The contacts were numerous
am yaried during time when Mobile faced a grave
prohahility of business failure." /d, at 102.

Copr, © West 2003 No Claim to Orig. U.S. Govt, Works


In Diamond Atkali, it even decided to order divestiture of the only factory the respondent had (since
the acquired company’s assets had already been dissipated). TL heard all the same arguments
presented by Respondents here and stil] held that “the-assumption of this Commission must be that
‘only divestiture can reasonably be expected to restore competition and make the affected markets
whole again” 72 F.T.C. 700, 742 (1967). The Commission reasoned that:

“Tt can either leave Diamond Alkali f: state guo on the assumption that it probably

will not be a potential competitor if we order divestiture, and Lhus nothing would be

gained by ordenng divestiture, or we can order divestiture on the assumption that

Diamond will remain a potential competitor notwithstanding its declared intent to the

contrary. If we select the first course, we are simply throwing up our hands and

surrendering all chance that (his Section 7 violation will be remedied. Hwe select the

second way, we preserve whatever promuse of enhancement of competition is implicit

in Diamond Alkali as a potential competitor. For the reasons set forth above we have

ehosen this second course.” fa. at 751.

In &SR Corp, the Commission made an even more extreme choice. It took away several plants
from the acquiring company to make the divested company as strong as it would have been if an
acquisition had not occurred — even if that would lead Lbe acquiring compuny into bankruptcy. 88
F.T.C. 800, 892-97 (1976), aff'd, 602 F.2d 1317 (9” Cir, 1979). It reasoned that this course of action
was better (han wllowing the acquiring finm to keep the advantage il gamed from iegal conduct. /d.

In this case, Compiaint Counsel is not asking for anything as extreme as in Diamond Alkali
or XSR, where the acquiring company may have been eliminated as a competitor altogether. Here,
CBI would still have revenues of over $1 billion and would still be larger than it was prior to the
acquisitions of HBI, Morse, and PDM. Although Complaint Comsei could have sought the
divestiture of Morse as well, it has not done so. Thus, CBI will be left with one more fabrication
plant than it had at the beginning of its strategy of monopoly by acquisition.

Tn sum, these witnesses and the law do not support Respondents’ position, Moreover, the

issue under Section 1 1(b} is not whether the witnesses should take a vote on the remedy, it is simply

85



Respondents have no proof that any competitor will replace PDM fully anit drive prices back
down in any market. In short, there simply is no suefficienr entry —just the usual suspects that have
competed ineffectively for decades, These so-called competitors have never impeded CBLin the past
(unlike PDM), and there is no evidence that they will now.

Proof of Anticompetitive Effects “Cements” Complaint Counsel’s Case.

Almost half of Complaint Counsel's closing was dedicated to anticompetitive effects, and
yet Respondents’ 173-page brief all but ignored this issue, offering a few unsupported paragraphs.
Yet, Complaint Counsel’s uncontested evidence of anticompetitive effects makes the remaining 171
pages of Respondents’ brief irrelevant. That’s because evidence of any “post-acquisition
anticompetitive” conduct (¢.g., attempted collusion or higher prices) completely “cements”
Complaint Counsel’s case. Von Kalinowski, J., Antitrust Law & Trade Regulation (2d ed. 1996)
(hereinafler “Von Kalinowski”) at § 4.03[4] (Citation omitted); United States v. General Dynamics
Corp., 415 US. 486, 505 n.13 (1974) (“post merger evidence showing a lessening of competition
may constitute an ‘incipiency” on which to base a divestiture suit.” ).

Indeed, the sole purpose of using HHls, entry, and experts is to predict whether
anticompetitive effects may be likely. When there is evidence that such effects have occurred, no
other analysis is needed. Libbey, 211 F.Supp. 2d at 49 (“Proof of actual detrimental effects” can
“obviate the necd for an inquiry into market power, which is but a ‘surrogate for detrimental
effects’’”) (citations omitted); FTC v. days "R” Us, 221 F.3d 928, 937 (7° Cir. 2000); FTC v.
Consolidated Foods Corp., 380 U.S. 592, 598 (1965) (“It is, of conrse, true that post-acquisition
conduct may amount to a violation of § 7 cven though there is no evidence to establish

probability...”),


1990 WL 198819
59 USLW 2370, 1990-2 Trade Cases P 69,247
(Cite as: 1990 WL 198819 (D.D.C.))

United Stotes District Court, District of Cotumbia.

FEDERAL TRADE COMMISSION, Plaintiff,
‘.
HARBOUR GROUP INVESTMENTS, L.P., et
al., Defendants.

Civ. A, No. 90-2525,
Novy. 19, 1990.
MEMORANDUM OPINION
THOMAS F. HOGAN, District Judge.

*1 On November 8, 1990, the Court issued an
order granting plaintifi's motion for a preliminary
injunction. The Court held that the defendants had
net met their burden in establishing their enudemem
to the “failing company” defense. The order stated
that a memorandom opinion in support Of the
Court's order would be forthcoming. This is the
memorandum opinion in support of the Court's
order of November 8, 1990,

Background

This antitrusi action was filed by the Federal Trade
Conmmssion ("FTC" or “Commission") on October
15, 1990, pursuant to Section }3(b) of the FTC Act,
15 ULS.C. § 53{b}. Section 13(h) of the FTC Act
authorizes the FTC w bring an action in federal
district court to seek preliminary refief pending the
completion of administrative proceedings by the
FTC to determine whether ‘the challenged
acquisition violates the antitrust laws. The FTC
seeks prescrvation of the status quo pending full
consideration by the FTC at an administrative trial.
The standard for issuance of a preliminary
injunction under Section 13(b) is that "weighing the
cquilies and considering tbe Commission's
likelihood of ultimate success, such action would be
in the public interest.” 15 U.S.C. § 53¢b). [FN1]

In the interest of time, cost, and simplification of
the issues, all parties decided to stipulate, for the
purposcs of the plaintiff's motion for a preliminary
injunction, that the FTC met its burden in proving
an adequate prima jocie casc on all relevant issucs.
Accordingly, the only issue before the Court is
whether defendants have met their burden in

Page t

establishing their entitlement to the "failing
company” defense, [FN2] The Court holds that the
defendants have riot met this burden, and that entry
‘of & preliminary injunction is therefore appropriate,

The Parties and the Challenged Transaction

Defendant Harbour Group Investments, L.P_
("Harbour Group”) is a Missouri limited partnership
that buys and sells companies, Harbour Group
acquired Meade Instruments Corporation ("Meade")
in December 1986.. Meade, 2 California

+ corporation founded in 1972, manufactures and sells

Schmidt-Cassegrain telescopes ("SCTs"), used by
amateur astunomers. Meade is located m-Costa
Mesa, California.

Defendant “Diethelm Holding (USA) Ltd.
<"Dievselm"), 8 Nevada Corporation, is ‘a subsidiary
of Diethelm & C€o., Ltd, a Swiss company.
Diethela owns Celestron International
("Celestron"), which is Jocated in Tossance,
California, Like Meade, Celestron manufactures
and sells SCTs.

The proposed transaction invotves a. joint venture
between Harbours Group and Diethelm regarding
their two telescope eubsidiaries, Meade and
Celestron, Meade and Celestron are the two
dominant manufacturers im the SCT market in this
country. Under the proposcd joint venturc,
Harbour Group and Diethelm will exch own 50% of
the joim venture, to be named Celestron Meade
International ("CMI"). The proposal calls for
combining the two businesses at a single production
site with centralized management, production and
sales. The agreement regarding the jomt venture
was signed on May 25, 1990.

Analysis

*2 Section 7 of the Claytou Act, 15 U.S.¢§ 18,

prohibils any acquisition by 2 corporation of the
sock or assets of another corporation “where in any
line of commerce in any section of the country, the
effect of such acquisition may be substantially to
lessen. canspetition or to tend to create a monopoly."
[FN3] The “failing company" defense is a
judicially created defense wo a suit brought under § 7
of the Clayton Act, and was first recognized by the
Sopreme Court ii international Shoe v. FT( 280

Copr. & West 2003 No Claim to Orig. U.S. Govt. Works


1990 WL 198819
Wite as; 199 WL 198919, *6 (D.D.C.)}

the presen time.

FN?. Lil the Court finds it unnecessary [0
decide the viability of a “failing divisiin® defense.
The PTC has urged dhe Court to hold chat Meale is
a division of Harbour Group, and that as a division
of a healdhy company, it is not emitled to
protection from the antitrust laws under the “failing
company” defense. The Cort will not accept

FTC's invitation-to construe this ussettled area of ©

the law.

FNS. The bank had informed the company that it
had to Taise an additional $200,000 in new capital
before it woukl extend further credit. 7d, at 101.

ENO. Indeed, it appears thar Harbour Group's
effons 1 find alternative purchasers were
motivated by advice of legal counsel, after most of
de deat with Diethelm had been completed.
Ralph Lobdell, the President of Harbour Group,
testified by affidavit chat “[i]n early May 1990, we
were advised by our counsel tht if we were going
ta rely ou the fact that Meade was a. failing
company % protect the contemplated
from any possible antitrust challenge, i would be
necessary for us 10 demonstrate that dere were 10.
alternative purchasers whe would-pay' + reasonble
price to acquire Meade.” -Affidavit of Ralph
Lobdcll a 9.

FNIU. Ralph Lobdell testified that im the fall of
169, Harbour Group "went ont and made
ing? info scveral businesses ... to buy them.”
Plaintiff's Exhibit 170 ut 38. However, it appears:
that diese contacts were to explore the possibility
of Harbour ‘Grou purchasiny another business.
Regardless of the purpose for which Harhour
Group spprnached these businesses, the Court finds
Wut ike approaches were oot oiatched by the
interest and mtensity with which Harbour Group
upprouched Celeson. :

FN1). Although Harbour Group contacted other

Page 6

‘brokers, most refused no conduct the search, given
Mcade‘s small size, Additionally, the Court Finds
thet other brokers contacted by Harbour Group
Tundled the Meade project informally, with a
pronounced lack of direction and effort. It is not
suprising that this half-hearted effort resulted in
vies imerested purchasers for Meade.

FNi2. Harbour Group contends that the June 29,
1990, date was chosen to comply with the Hart
Scott-Rodino waiting period, which would expitc
om that dare. Defendant Harhour Group's
Proposed Findings, a 30, ‘They further imply dsat
Harbour Group’s hunds were tied by Goverimensal
sepulation, suggesting that it is impossible to seek
‘out alvercative purchasers and obtain PTC approvat
of a proposed merger simultanctudy. The FTC's
rules require attestation that  comract, agreement
in principle of icttcr of intent a merge be executed
before the FTC's process of amitrust review |
commences, Harhaut Group misses ue point.
Before it was close to reaching a final agreement ©
with Diethetm, Harbour Group shoutd have
comucied in dona fd search for an alternative
purchaser required by the antitrust laws. Waiting
to eommence the search until the deal is near
pompletion and-until the process of governmental
review begins will unlikely reselt in a scarch that
will pass inusier under the “failing company”
defense.

FN13, According to the FTC, potential alternative
poschasers, knowing of the pending deal beween
Harbour Group um] Diethelm, would unlikely sake
sieps toward structuring an alternative purchase,
for fear of lisbiliqy for imerference with 3
Preexisting agicemen, akin (0 the liability
recognized in Teaco v. Pennzoil, 729 5.W.2d 768
{Tex.C1App-1987).. Plaindff's Answer 10
Defendams’ Prehearing Memoranda, st 36-37,

1590 WL 198819, 1990 WL 198819 (D.D.C.), 59

USLW 2370, 1990-2 Trade Cases P 69,247

END OF DOCUMENT

. Copr. & West 2003 No Claim to Orig. U.S. Govt. Warks


it already has, it proves the point — not with expert hypothesis, bul with facts. See Libbey, 211 F.
Supp. 2d at 49 (“Proof of actual detrimental effects’” can “obviate the need for an inquiry inte
market power, which is but a ‘swrogate for detrimentsteffects’’”) (Citations omitted); Toys “R” Us,
22] F.3d at 937; Consolidated Foods, 380 U.S. at 598.

Dr. Simpson’s analysis proves that CBI can raise its prices without losing profitability,
Respondents and their ccouomic expert argue that Dr. Simpson’s analysis is flawed for two reasons.
First, respondents claim that Dr. Simpson overestimated the critical loss because he incorrectly
identified fabrication cost, drafting and engineering cost, project management cost, and certain ficld
erection costs as variable rather than fixed, Respondents’ claim that these costs are fixed is based
entirely on Mr. Scorsone’s slalement that CBI would not vary these costs if it lost business.
However, other evidence indicates that CBI and PDM would vary their use of these resources as
outpul changed, (Scorsone Tr 4887-4888) And, Mr. Scorsone’s admission that these resources
could be redeployed to other projects indicates that these costs are variable. Dr. Harris,
Respondents’ economic expert, relied on Mr, Scorsone’s statements about variable costs in his own
analysis but later admitted that this caused him to erroneously identify a cost as fixed when it was
in fact variable. (Haris, Tr, 7901-7903)

Second, Respondents claim that the state of mind of CBI executives is such that they think
they cannot raise prices. But CBI has raised prices. So, who's state of mind is rclevant Messrs.
Steimer, Lacey and Miles who raised the prices but who did not testify? Or Mr. Glenn, who simply
Teverts to a “trust us,” generalized denial that they would ever raise prices? Complaint Counsel
respectfully suggests that this Tribunal look at the facts: prices and margins have gone up. Since
CBI was able to do so with almost no opposition of any kind, as Dr. Simpson’s testified, “we would

expect [CBT] to learn what the conditions are in the marketplace” so they can sustain these higher

59


for CBI to pay anything for PDM ifit truly were going to disappear from the market and Jcave nothing
for smaller competitors to grab.

Indeed, that is exactly the issue raised by Respondents in their example of Graver.
Respondents claim that what happened to “Graver thus constitutes a natural market experiment of
what would happen if” PDM were liquidated. (R. Briefat 152) If Respondents are correct, rhep have
proved that they cannot use the novel “exiting asset” defense here. As Respondents point out,
Graver’s asscts did not exit the market either: Chattanooga Tank became more competitive,
Respondents argue. because it “acquired ‘quile a bit of...equipment’ from Graver -- a former
compstitor in the LIN’LOX tank market -- when it went out of business in 1999,” (RK. Brief at 105,
citing Stetzler, Tr. 6317-19; R. FOF 5.59).

There can be no doubt, therefore. that the sale of PDM’s EC division, even in a “liquidation,”
to smaller competitors, whose ability to compete in the relevant markets would be improved, would
be far more beneficial to competition than a transaction that makes CBI more dominant ao it can now
“Svin” every job it wants. (CX1731 at 44); see Areeda at § 952b (“[EJxit might be preferabic on
competitive grounds to acquisition by an already dominant firm because without such acquisition
small rivals may have al better opportunity to pick up the failing finn’s customers or resourecs”),
Accordingly, Respondents cannot satisfy even the novel exiting asset defense.

What is striking, however, is the extent lo which Respondents would miscite their own
testimony to make their argument here. For example:

Respondents unequivocally teil this Tribunal that “Mr. Scheman evaluated the potential
purchasers and determined that only one -- CBI -- had the requisite ability to purchase the EC and
Water Divisions at above liquidation value.” (R. Brief atl42, citing Scheman, Tr. 6924-26)

(Emphasis added). Respondents even claim that Scheman “conducted” an “analysis” to determine

65



As pointed out in the Introduction above (at p.3, n.2}, Respondents ignore the most recent
D.C, Circuit cases on point as well as all the FTC precedent since the Merger Guidelines.
Additionally, (hey miscite lhe few cases they can muster for their point. For example, they claim
that “warket share statistics are insufficient to void a merger.” (R.Brief al 7, citing US. v. Waste
Mgmt. Inc., 743 F.2d 976, 982 (2d Cir. 1984). But the court in Waste Management held: “a past-
merger market share of 48,8% ts sufficient to establish prima facie illegality.” 7d. at 981" United
States v, Syufy Enter., et al. 903 F.2d 659 (9" Cir. 1990) is no different. There, the court held that
“[UJjime afler time, we have recognized this basic fact of economic life: ‘a high market share... may
ordinarily raise an inference of monopoly power.’” Jd. at 664.

Respondents then ask that this Tribunal simply ignore the statistics and rely instead on
“commercial realities.” (R.Briclat 8, citing FTC v. Great Lakes Chemical Co., 528 V. Supp. 84 (N.
Dz. Tt. (1981); United States v. Calmar, Inc., 612 F. Supp. 1298, 1301 (D.N.J. 1985)). But the
Respondents fail to mention that the court in Great Lakes decided that the “market share and
concentration slalisucs” were “questionable,” leading the court to determine, among other things that
there was not any competitive “overlap” between the respondents’ products. Great Lakes at 86, 92.
As this was merely a preliminary injunction hearing, the court explained that ifthe FTC won at trial,
“divestiture would be an effective ultimate remedy.” fd. at 99. Calmar, another case cited by
Respondents, held specifically hat at 2,302 HHI, the “merger will result in a dcgrce of concentration
which establishes prima facie that it is likcly to cause a substantial lessening of competition.”
Cabnar, 612 F. Supp. at 1305 (Holding that defendants’ evidence of entry rebutted the government’s

case). Finally, contrary to Respondents’ position, M.P.M. held that “market statistics therefore

*The court then went on to find that the prime facie cass has been rebutted only hecause
entry was so easy in the garbage truck market where trucks from Ft. Worth could be easily driven
lo the Dallas market. Waste Mem. 743 F.2d at 983.

10



1990 WL [98819
(Cite as: 1990 WL 198819, *3 00.0.C.)}

Jn the instant case, the Court finds that defendants
have not shown that the joint venture with Celestron
is the only available alternative open 10 Meade. In
teaching this conclusion, the Court looks
particularly at the fact that the deal between
Harbour Group and Diethelm had already been
struck at dhe time any serious efforts to find
alternatives to the joint venture really began. [FN9]

The evidence shows that a potential merger
between Meade and Celestron had been considered
by Harbour Group as a possibility as early as 1987.
See Plaintiff's Exhibits 73, 170 at 37. In late
1989, pressured by fimancial difficulties, Harbour
Group atiemptcd to mitiate new discussians with
Dicthelm, and by February 1989, serious
discussions were underway regarding the possibility
of combining. the businesses. Affidavit of Ralph
Lobdell at 7. [FN10] The President of arbour
Group testified that "[oly April of 1990, it seemed
Tikely that a joint venture agreement with Celestron
could be achieved ou acceptable terms. fd at 8.
Harbour Group and Diethehn signed an agreement
on May 25, 1990, -

It was not uni May 18, 1990, chat Harbour Group
firs, comacted Merrill Lynch, the broker which
Harbour Group. contends bandied most of the
search, to discuss a possible search for alternative
purchascrs for Meade, {FN]1] Merzill Lynch only
agtced ta handle the search the followmg week.
Defendant Harbour Group Exhibit U, Deposition of
Curtis McWilliams at 33. The efforts made by
Mermill Lyach on behaif of Harbour Group did not
comport with. a normal Merrill Lyuch exhaustive
starch, For one, the searcle was pot handled by the
division within Merrill Lynch that had expertise in
scliing small companics. Two, offering materials
prepared by Merrill. Lynch were minimal,
conlaining a brief two page executive summary,
with fimancial information and product brochures
attached. Three, the search consisted of minimal
exploratory phone calls, wilh little follow-yp or
attention by the brokers who were responsible for
the search.

*4 The Court does not find that a company seeking
protcetion under the failing company defense is
obligated ta hire a big name broker to attempt to
selj the company, or to print the most sophisticated
materials in an attcmpt to sell, JJowever, here the
departure from the normal business operations at

Page 3

Merrill Lynch supports de FTC's assertions that
Harbour Group's search for an alternative to the
jomt venture with Celestron was characterized by @
mainimal effort and designed primarily ta be
periunctory.

Despite the fact that the agyeement between
Harbour Group and Diethelm had taken at least five
months ta work out, Merrill Lyach was advised that
Harbour Group was only interested in an alternative
purchaser, “if they cate up with a purchaser before
the jeint venture was consummated." Affidavit of
Ralph Lobdell at 11. The short time frame within
which alternative purchascrs would be considered is
underscored by the deadline imposed in the joint
vemure agreement itself. The joint venture
ugreement contained an express provision that either
Hurbuur Group ur Diethelm was free tw solicit
acquisition offers from third parties and that if a
bona fide offer was received by Meade or Celestron
by June 29, 1990, the joint venture could be
terminated, id, at 12-13. [FNi2}

Defendants argue drat it makes no difference thar
an agreement between Harbour Group and Diethelm
was already pending al the time searches ‘for
alternative purchasers look place. ~ In particular,
they point to the fact that- Harbour Group
specifically’ instructed’ Merrill Lynch not 10 reveal
the pending joint venture in any of their approaches
lo potential purchasers, However, regardless of
Harbour Group's instructions, the jomt venture
beeween Harbour Group and Diethelm was common
knowledge among those in (he telescopic industry”
Tn June 1990, Meade announced the pending joint
venture to its distributors and customers.
Plaintiff's Exhibit 110, No mention was made that
other purchasers or mergers would slill be
considered by Mcade. The’ distinct impression
given by the memorandum was thal the joint
venture was a nearly completed deal. Thus, any
potential purchaser of Meade that received this
memorandum would likely have believed that no
epportunily remained io acquire Meade. [FN13)

Harbour Group suggests that it is unreasonable to
require it lo approach smaller‘ companies in ‘Wie
industry that could not be expected io have an
interest or ability 60 purchase a larger company such
as Meade. . The Supreme Court bas implied that, at
Jeast in some cases, approaching smaller companies ©
in a given industry might’ be exactly what is

Copr. @ West 2003 No Claim 10 Orig. U.S. Govt. Works


did not actually cite any witnesses to prove this. Instead, their argument appears to be based on their
notion that having large customers is enough. The Guidelines explains, however, that “[b]uyer size
alone is not the determining characteristic,” but thata defense may exist when large buyers tie up
the market with “long-term contracting” so that collusion would be difficult, Merger Cuidelines §
2.12, ‘Thai secnario does not apply here. In any case, over the years, the “power buyer” defense has
been given little weight and is generally insufficient to counter evidence of high concentration.
University Heatth, 938 F.2d at 1213 0.13 (“[Ghiven the FIC’s strong showing that the proposed
acquisition is likely to lessen competition substantially..we think that the existence of these
suphisiteated purchasers in the relevant market, which may inhibi collusion, is insufficient to
overcome the FTC’s case”): see also Cardinal Health, 12 F, Supp. 2d at 61 (Buyer power “alone
cannot rebut the government’s prima facie case.”); United States v. United Tote, 768 F. Supp. 1064,
1085 (D.Del. 1991) (Rejecting defense because it left smaller buyers “unprotected”); Aliant
Techsystems, 808 F.Supp. at 9,24 (Granting preliminary injunction even though there was only one
buyer — the United States military).

Another case not mentioned by Respondents is the most recent case m which the
Commission considered and rejected this “power buyer” defense. In Coca-Cola Bottling, the
Commission explamed thal the defense is meunmgless unless most of the customers “Taring wn
anticompetitive price increase could avail themselves of options other than paying the price increase
and thereby force” the Respondents to lower their prices. 118 F.7.C. af 611 (1994) (Rejecting the
defense). As there arc no other fewer price options for customers of LNG, LPG, or LIN/LOX tanks
—and no options at all for customers of TVCs — this theary doesn’t wark at al) here.

Yet even the example in Baker Hughes of “sophistication” of some buyers proves the point.

There, the court found that the sophisticated buyers had competitive choices because they “typically

15



Tn sum, CBI's prices and margins in LNG tanks are going up. No actual, perceived ot
phantom entry is keeping them down to pre-meryer levels. Thus, Respondents’ entire LNG entry
story is untenable as a matter of law. =

3. There Is No New Entry Into the Market For 1.PG Tanks.

Respondents claim that “actual entry has already occurred in the LPG market, and more is
foreseeable.” (R-Brief at 89) This statement is simply outrageous. There has becn absolutely no
new entry into the markct. The two examples raised by Respondents are a small tank, builtby Morse
{now owned by CBI), nearly a decade ago, an a very small tank built in 2000 by ATV. Neither has
even bid on, much less built one since. Moreover, since ATV is the only one left, it can hardly be
qualified to replace PDM and keep prices at pre-merger levels.

Respondents state, “AT&V has recently entered the market for LPG tanks.” (R.Brief at 89)
and direct this court to projects built hy ATV 1994 (CX 397 in camera). Why Respondents claim
this is relevant while they tell this Tribunal to disregard all evidence prior to 1999 is baffling.
Additionally, the project constructed in 1994 is not a tank. The very document Respondents cite to
illustrates that the 1994 project was a sphere, which is not in the relevant product market. ATV’s
first LPG tank project was for [ ] i camera). The projects value was only
[ J, less than 1/5 the value of the next largest tank built from 1990-2001, (CCFF 172}. As
discussed infrz, it is only on these much smaller lanks that ATV believes it can be competitive on.

In addition to falsely claiming ATV had built an LPG tank in 1994, Respondents claim that
ATY has beat CBI on past projects because “ithad the hest price.” (R.Bricfat 90) Respondents also
offer evidence that ATV has an “excellent reputation.” (/d. at 91) However, a review ofthe evidence

Teveals these assertions are not accurate,



Hyun and the many other judges amd examiners that have carried out this difficult mission since the

Clayton Act was first adopted in 1914 to stop anticompetitive effects in their incipicncy.

Dated: March 14, 2003

89

Respectfully submitted,

I. Robert Robertson .
Counsel Supporting the Complaint

Federal Trade Commission
600 Pemsylvania Ave. N.W.
Washington D.C. 20580
(202) 326-3498


Rather than provide real evidence of entry, Respondents spend dozens of pages explaining
that these foreign competitors can build tanks, which of course they have for decades. Nunc have
actually sald even one tank anywhere in the Uintted States.'* The cauple of LPG tanks that were buiit
by others, such as small tank by ATV and the Morse tank, built nearly a decade ago, have always
been included in Compiaint Counscl’s statistics for the prima facie case. Obviously, one-time
business in 1994 isn’t “entry” today, particularly where the firm has exited through acquisition by
CBI. The other small LIN/LOX tanks built by ATV at a higher cost and poorer quality than CBI
does not establish ATV gs a replacement for PDM. ATV has been here for years, and there is no
chance that they will expand their small outfit ta become a dominant player in any of the relevant
product markets. (See CCFF 448-459).

Respondents also cite extensively to the testimony of their executives about their view of
competition. (R.Brief, al 65-71, 96, 115-18), However, the evidence paints a different picture. For
example, CBI's CEO, Glenn, “ told his investors that CBI “can win” every job in the LNG market.
(CCEF 769}. That same level of confidence is also reflected in CBI's publicly filed SEC reports,
where CBI detailed extensive competition before the acquisition and yet specifically omits any

reference to any competitive pressures after it eliminated PDM as a competitor, (CCI'F 753-760)

3 Baker Hughes, in contrast, it was quite clear that forcigm companies could be
effective competitors, since the merging parties were both based overseas, and the entrants had
already sold products in the United States. Baker Hughes, 908 F.2d 981.

16 Respondents’ self-serving testimony is much less credible than their observations and
course of conduct in ihe marketplace, See Mercantile Texas Corp. v. Board af Gaveraors of the
Federal Reserve System, 638 F. 2d 1255, 1269 (5" Cir, 1981) (statement of tirm’s intenl “are
probative, but may frequently be self-serving and, therefore, extitled to little weight”), citing
Falstaff Brewing Co., 410 US. at 565 (Marshall, J. concuering)). Justice Marshall reasoned in
Faistaff that “it is in the very nature of such evidence that in the usual case it is not worthy of
credit.” Falstaff, 410 U.S. at 567-68. Cf Wsol v. Great Norift Asset Momt., ine., 114 F. Supp.
2d 720, 725 (ND. D. 2000) (self-serving (estunony describing business techniques “carries little
weight”).

27


present a prima facie violation of the Clayton Act” at which point the “burden then shifts to the
defendants to demonstrate clearly that the merger portends no probability of substantial diminution
ofcompelilion.” Caiied States v. M.P.M., Inc., 397 F>Supp. 78, 91-92 (>, Colo. 1975). Thus, nene
of these cases stand for the proposition offered by Respondents.

Ilere, the structural evidence of concentration is off the charts -- between 5,800 to 10,000
HHL (See CC Post-Trial Brief, Section T). Respondents’ own documents corroborate these
conclusions. For example, in early 2000, Mr. Scorsone estimated for the PDM Board that PDM and
CBI eack had a { }and Morse a [ ] market share in domestic cryogenic tanks for a total
of[ market share for the combined CBI/PDM/Morsc, (CX 660 at 3; Scorsone, Tr. 5179-5180).
Mr. Scorsone also admitted that CBI was PDM’s ondy competitor on domestic LNG, LPG and TVC
Projects. (Scorsonc, Tr. 5183; CX 660 at 2, 5) There is no evidence to the contrary. Accordingly,
the concentrations here are extraordinarily high.

Respondents claim that they would prefer a short time period that then exciudes one of them
from the market. Their basic principle is flawed, however, since they were in the market. But also
the idea that one should use short time periods in this case when sales are so infrequent is against
all established theory on lhis point and the facts in this case. For example, the Merger Guidelines,
established case law and economic theory teach that in markets “where individual sales are large
and infrequent so (hat anual 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 data for an)y a three-year period where shares were

‘The Commission, courts and the Merger Guidelines allow consideration of such pre-
acquisition industry evidence. £.g., Merger Guidetines §2.211, 1.22 (“normal course of business
documents from industry participants”); Jn re Coca-Cola, 117 F.T.C. 795, 945 (1994); Heinz,
246 F.3d at 717.

il



transaction prices and budget price quotes. No one can question that the Cove Point and Spectrum
Astro prices were actual, not budget, prices.

Nevertheless, budget prices are indeed relevanvhere. Even they wentup after the acquisition,
Prior to the acquisition, CBI was forced to price close to its cost, in arder to compete against PDM,
which enjoyed 2 similar cost position to CBI. Since the acquisition, CRT is no longer constrained
to price as low. After the acquisition, all but one of the supplier selections for LNG tanks has been
to sole-source from CBI (the other (CMS) awarded the project to CHT outright). For all of these
deals, budget prices are the only competitive price information available to a customer when it makes
the decision whether to choose CBI. Thus, budget prices determine lhe outcome.

Respondents are wrong when they assert that “[eJustomers simply do not purchase products
based on budget prices.” (R.Brief at 126). A budget price is an initial price quote that provides the
basis for sclecting a supplier and negotiating a final price. (Neary, Tr.1440 (“We fizst receive their
initial price. Then we select the vendor”). Mr. Cutts of AT&V explamed that bids can he awarded
solely on the budget prices. (IX 23 at 27-28 (Cutts Tr.)) That is exactly what happens.

When CBT and PDM competed forthe Cove Point LNG tank (hey reduced their bids to match
the budget prices each had earlier supplied to[ ]. CCFF 889-97. When CBI and PDM competed
fora TRW TYC project, CBI's final price to TR'W was close to the onginal budgetary pnee. (Neary,
Tr. 1440-41). [ dd

] camera), AUanla Ges Light Company selecled PDM over CBI. in 1998,
based on budget price bids submitted by CBI and PDM. (CX 161 at CBI-PLO06113-114). PDM
outscored CBI in the bidding competition “on the basis of their lower budget price.” (CX 161 at
CBI-PL006113). Indeed, CBI’s own documents reveal the fact that bids are won or lost on the

hudget prices. (CX 161 at CBI-PL006114) (Customer’s selection “[aJll in ail - boiled down to

35


Reichhold Chemical Ine., 91 F.T.C. 246 (1978) 0... e cece cee ence ec ene 24

Retait Credit Co. 92 F.T.C. 1 (1978) 20 cence reece rere 71, 72, 73
RSR Corp, 88 F.T.C. 800 (1976), =

aff'd, 802 F.2d 1317 (9 Cir. 1979) 2. cece ee ees 74, 75, 85
Service Corp. Intern., 65 FR 35643 02 cece cece cece ce eee eet eee 32
Tasty Baking Co. v. Ralston Purtna, Ine.,

653 F. Supp. 1250 @.D.Pa, 1987) 0... ccc ee eee cece een es 14, 52
UAW v. NRLR, 459 F. 2d 1329 (D.C. Cit. 1972) 00. eee ee cece eee ences 6, 39

United States v. Azzarelli Const. Co.,
612 F.2d 292 (7 Cit, 1979). eee eee eect ec c eee ete t et eaten ee SB

United States v. Baker Hughes, Inc.,
908 F.2d 981 (D.C. Cir, 1990) 0... sees eee 9, 11, 13, 15, 16, 19, 20, 23, 24, 27, 28

United States v. Blue Bell, ine,
395 F. Supp. 538 (M.D. Tenn. 1975)... 0c eee eee ce eee e eee 64

United Stutes v. Calmar, Inc.,
612 F. Supp. 1298 (D.N.J_ 1985) 06. eee e ee eee ete eee e eee 10, 20

United States v, Culbro Corp.,
504 F. Supp. 66] (S.D.N.Y. 1981) 00... eee e teeter eee nes 69

United States v. E.i du Pont de Nemours Cu.,
366 US. 316 (IB61) oo eee cece eee ee 76, 77, 88

United States v. E.1 du Pont de Nemours Co.,
353 U.S. 586 (1957)... eee ceeceeeveeees voce c cee eeeveeeee 16

United States v. Ei Paso Natural Gas Co.,
76 US. O51 (19604 ee eee ee eee cere rere ee ee ree 8, 12, 78

United Siates v. Falsiaff Brewing Corp.,
410 US, 526 (1973) cece eee e eee ence eee enee 19, 27, 41

United States v. Franklin Etec. Co., Inc.,
130 F. Supp.2d 1025 (W.D.Wisc. 2000) 2.2. 23, 24, 37


Moreover, the testimony that Respondents use to buttress this argument is misciled and indoed
undermines their entire case. For example, Respondents assert unequivocally that Cutts testified that
ATY “could fully compeic against CBI on all fronts” s#hereceived some employees, technical advice,
customer lists and specifications from CBI. (R. Briefat 171) That’s simply not true. Cutts was never
asked that question, or anything close to it, He was simply asked what he would be willing to “buy”
that “would improve their ability to compete,” period. (Cutts, Tr, 2371} No mention was made about
competing “fully against CBI on all fronts,” or anything like that. Moreover, the list he mentioned
included many items that CBT forgot to list, like:

“(AJ 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 cerlain cryogenic applications. Their name, so 1 don't have to spend.

ten years building our name and fighling everybody in the industry who says things

that aren't truc about us. And probably acquire a couple of their people. ! know one

in particular. After that, 'm not sure who.” (id. at 2371-2372)

As one can see from the question and the answer, Cutts wasn’t asked about competing “fully
against CBI on all fronts,” nor did he complete his list of what he might want to “buy.” This is why
cross examination of live witnesses, rather than Respondents’ use of snippets of imprecise deposition
testimony, is more illustrative of the truth. Indeed, Respondents failed to mention that, clsewhere,
Cutts actually spoke about why ATV wasn’t a slong compelilor, and he testified that his company
is too small to be as competitive because ATV cannot “bond these larger jobs,” and in fact recently
had to refuse “to bid two cryogenic tanks” because they lacked “capacity.” {Cutts Tr. 2366, 2375; see
CX 460 at 2 and CX 1654 (showing ATV’s capacity is dwarfed by CBD). ATV’s woes were also
corroborated by Kistenmacher—Linde BOC Process Plants who tustified that ATV had a “very poot
track record” and “had many change orders [so} that in the end the price was higher than of the

conventional vendors.” (Kistenmacher, Tr. 862, 870) | J

fi ], 2 camera (wouldn't use ATY because of lack of experience and bad

87


on the economy and even when ne sles had yet occurred. See, e.g., Grumman Corp. v. The LTV
Corp., 665 F.2d 10 (2d. Cir.1981) (Court enjoined merger even though target company was not
currently selling any of the products); FTC v. Food Teen Stores, 539 F.2d 1339, 1345 (4" Cir.1976)
(Enjoined small supermarkel merger, even though overlaps were “de minimis” -- “[iJhe faet thal the
markets iv which the firms compete may be small is irrelevant under the Clayton Act and does not
affect the legality of the merger.”); Service Corp. Intern., 65 FR 35643 (FTC consent ordering
divestiture of a funeral home); Alfianr Techsystems, 808 F.Supp. 9 (D.D.C. 1992) (Enjoining
$700,000 merger of competitors of ammunition for Abrams tank hefore sales ever took place),

Noz is the TVC market insignificant to the economy and defense of the United States. A
strategic plan drafted by CBI in 1999 described demand as growing in “the commercial satellite
market” and in military and NASA programs” which drive T VC sales. (CX 1196 at PDM-
HOUO1 1519) (“good market for thermal vacuum and test facilities for the nexl 5 years”). NASA
programs likely to generate demand for new TVCs include t he S pace S tation and the “Next
Generation Space Telescope,” whieh will be several times larger than the Hubble lelescope. (CX
212 at CBI-PLO3I717). Engineering work on this new telescope has already started and prime
contractors are preparing proposal specifications. Jd Additionally, NASA has plans for extensive
satellite developments that will require new test facilities. (/d. at 1716).

At uial, Mr. Gill of Howard Fabrication testified that “[tJhere is a growing market for large,
therrnal vacuum chambers now.” (Gill, Tr. 185). “[TJhe Department of Defense is allotting large
amounts of money to major aerospace companies for systems that are going to be required by the
military in the future.” (Gill, ‘Tr. 212). For example, TRW, a defense contractor, plans to procure
a large, ficld-ereeicd thermal vacuum chamber in the next several years for the NPOAS program.

(Neary, Tr. 1425, 1474). TRW began its procurement process for this ‘VC in 1999 by obtaining

32


1990 WL 1988!9
{Cite as: 1990 WL 198819, *4 €D.D.C.))

Tequired of a company seeking the protection of the
failing company defense. In Greater Buffaio Press,
the Supreme Court reviewed an acquisition by
Greater Botfaio Press, Iuc., of all the stock of
International Color Printing Co. Bolh companies
were in the business of printing comic supplements
used on the weckends by most newspapers. In
reaching its decision that the District Court had
erred in finding that the acquisition im question was
within the failing company defense, the Supreme
Court pointed to the fact that “only King and
Greater Buffalo were conskiered as prospective
purchasers; the numerous other smaller comi¢

supplement printers were never even approached.” .

dd. at 555-556.

*5 The FTC contends that there are at least three
purchasers who arc interested in buying Meade, and
that they represent viable alternatives to the Meade/
Celestron joint venture. Se: Plaintiff's Answer to
Defendants’ Prehearing Memoranda, at 4 See
aiso Plaintiff's Exhibis 173 and 174, Deposition
Transcripis tiled November 6, 1990. Harbour
Group's response to these assertions by the FTC has
not been to approach the potential purchasers
seriously to determine if a successful agreement
could be reached, Instead, defendants have spent
subsimtid energy in irying to disprave tie FTC,
and show why these potential alternatives are not
options at all.

The Court has reviewed the depositions filed at the

tune of the bearing. In both the depositions, the
tenor of the testimony is that these people would
consider purchasing Meade, have financial backers
in mind that they would approach if dey were to
Pursue such an optipn, but that they lack sufficient
financial information about Meade to cntertain
scriously such a purchase. The lack of information
known by such potential purchasers regarding
Meade points not t0 a weakoxes i) the FTC's case,
but to the fact that prospective ahernatives to the
merger exist which have never been scriously
contacted by Harbour Group. Such jack of
information in the hands of potential purchasers
undermines the defendants’ position that they are
emitled fo exception from the afttitrusi jaws under
the failing company defetise. The FTC is not
obligated to prove that these companies are
immediately ready and willing « purchase Meade
Instead, Harbour Group’s burden to show that
the Meade- Celesyon joint venture is tonly”

Page 4

available alternative. The FTC's revelation
regarding these companies points only to the fact
that Harbour Group's scarch has been narrowly
Structured, and stil] has not seriously considered
options within the very industry occupied by
Meade.

Certainty Celestron thought other companies might
be interested in acquiring Meade. Indeed, it
appears that one of the primary reasons that
Celestron was interested in Meade was its concer
that if it did not acquite Meade, another .company
might. A memorandum obtained from Dicthelm
during discovery reviewed the opportunity provided
to Celestron by Meade's financial difficulties. The
memorandum states, in pertinent part:

(Mt appears we have made progress over our
compelitor during the Iasi Wwelve months. My
major cue wilh this situation is the possibjlity of
someone else acquiring M) |Meade] chat is willing
{0 mvest more moncy to maintain their market
share. One such company could be’ Vixen....
Vixen is extremely interested i distributing inore of
their own products in the 8.5. Meade could be whe ©
opportunity Vixen is looking for t expand weir
sales in the U.S. Such an acquisition by Vixen could
be extremely detrimental to our domestic sales as
well as significantly reduce our sales in Japan. Of
course, Vixen is the obvious company that comes to
mind that could see the acquisition of MJ as an
opporlonity but | am sure there are several others
that may aiso fail nua this category.

*6 J believe it would be in CI's-[Cciestron's] best
interest to ask Willi to contact the Harbour Group 10
explore the purchase of MI. it would be excesnely
difficult 10 another company 10 seriously compete
against us if we were able to acquire MI.

Plaintitf's Exhibit 37.

The Court does not, in its-ruling today, create a per
se rule that all small companies within a given
industry must be contacted before one can
successfully invoke the failing company defense.
Instead, the Court holds that, in the case before it,
Harbour Group's mvocation of the failing business
defense cannot succeed, in part becanse the
evidence shows that it made minim efforts, if any,
10 contact obvious companies in its own industry
that appear to be willing to at least entertain the

Copr. © West 2003 No Claim to Orig. U.S. Govt. Works


None of them have ever sold or even come close to selling an LNG tank in competition with
CBL Thus, there is no entry, much Sess timely entry (within two years). Moreover, the evidence is
nndisputed that these foreign (ank suppliers’ prices are far above the pre-ucquisition competitive
prices of CBI and PDM. Thus, “entry” by these companies, if it ever happened, could not possibly
be profitable at pre-merger prices Lo force prices down lw pre-merget levels.

For example, Respondents claiss that Skanska/Whessoe entered the LNG market. Not tme.
Respondents state that for Dynegy,“Skanska beat” CBI (R.Brief at 21) This simply is not true
Skanska did not beat CBI at anything, nor has it ever been awarded any job to build an LNG tank
in the United States. CBI refiesed to bid on the EPC portion of the project. (Glenn, Tr. 4242;
Puckett, Tr. 4563; CX 139 at CBI1019781-HOU}. No company has won any bid for an LNG tank
al Dynegy, and if Whessoe is lucky enough to win it, it will not be because its price is lower (han
CBI’s. CBI refused to bid. And from the evideace depicted on [ ] (supra at p. 3), it is
undisputed that Whessoe’s prices are far above anything that CBI bas bid for LNG tanks.
Respondents ignore the fact that Dynegy wanted “competitive bidding” to give them the lowest
prices. (CX 139 at CBI 019777-HOU). Yet, with CBI refusing to bid, the customer is concerned
the cost of the tanks will be higher than they would have been with CBI and PDM bidding. (Price,
Tr. 622; 590 (Foreign cortipetitors prices are higher than CBI's). They are right. (See [ D

Respondents’ ¢laim thal Dynegy was “salisfied wilh prices received by foreign competitors”
38 absolutely untrue. (R-Brief at 72) The customer was asked a different question: “‘At this time in
the process, speaking for Dynegy, you are satisfied with those bids.” 7d. And when CBI refused to
bid, Dynegy was “very concemed” about “maintaining competition” for the LNG tank. (Price, Fr.
609), Dynegy even attempted to persuade CBI to rethink its position, but CBI never offered a bid

ofanykind. (CX 518 at CBL019777-HOU). Dynegy did not want to change the bidding rules, as