Opinion ID: 108196
Heading Depth: 1
Heading Rank: 4

Heading: the anticompetitive effects of the merger

Text: We turn now to the ultimate question under § 7: whether the effect of the proposed merger may be substantially to lessen competition. We pointed out in Philadelphia Bank, supra, at 362, that a prediction of anticompetitive effects is sound only if it is based upon a firm understanding of the structure of the relevant market; yet the relevant economic data are both complex and elusive. . . . And unless businessmen can assess the legal consequences of a merger with some confidence, sound business planning is retarded. . . . So also, we must be alert to the danger of subverting congressional intent by permitting a too-broad economic investigation. . . . And so in any case in which it is possible, without doing violence to the congressional objective embodied in § 7, to simplify the test of illegality, the courts ought to do so in the interest of sound and practical judicial administration. We stated in Brown Shoe, supra, at 315, that [t]he dominant theme pervading congressional consideration of the 1950 amendments [to § 7] was a fear of what was considered to be a rising tide of economic concentration in the American economy. In Philadelphia Bank, supra, at 363, we held that [t]his intense congressional concern with the trend toward concentration warrants dispensing, in certain cases, with elaborate proof of market structure, market behavior, or probable anticompetitive effects. Specifically, we think that a merger which produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms in that market, is so inherently likely to lessen competition substantially that it must be enjoined in the absence of evidence clearly showing that the merger is not likely to have such anti-competitive effects. That principle is applicable to this case. The commercial banking market in Phillipsburg-Easton is already concentrated. Of its seven banks, the two largest in 1967Easton National Bank and Lafayette Trust Co.had 49% of its total banking assets, 56% of its total deposits, 49% of its total loans and seven of its 16 banking offices. Easton National is itself the product of the merger of two smaller banks in 1959. The union of PNB-SNB would, in turn, significantly increase commercial banking concentration in one town. The combined bank would become the second largest in the area, with assets of over $41,100,000 (19.3% of the area's assets), total deposits of $38,400,000 (23.4%), and total loans of $24,900,000 (27.3%). The assets held by the two largest banks would then increase from 49% to 55%, the deposits from 56% to 65%, the loans from 49% to 63%, and the banking offices from seven to 10. The assets held by the three largest banks would increase from 60% to 68%, the deposits from 70% to 80%, the loans from 64% to 76%, and the banking offices from 10 to 12. In Phillipsburg alone, of course, the impact would be much greater: banking alternatives would be reduced from three to two; the resultant bank would be three times larger than the only other remaining bank, and all but two of the banking offices in the city would be controlled by one firm. Thus, we find on this record that the proposed merger, if consummated, is . . . inherently likely to lessen competition substantially. Cf. Philadelphia Bank, supra; Nashville Bank, supra; United States v. Von's Grocery Co., 384 U. S. 270 (1966); United States v. Pabst Brewing Co., 384 U. S. 546 (1966). Appellee banks argue that they are presently so small that they lack the personnel and resources to serve their community effectively and to compete vigorously. Thus, they contend that the proposed merger could have procompetitive effects: by enhancing their competitive position, it would stimulate other small banks in the area to become more aggressive in meeting the needs of the area and it would enable PNB-SNB to meet an alleged competitive challenge from large, outside banks. Although such considerations are certainly relevant in determining the convenience and needs of the community under the Bank Merger Act, they are not persuasive in the context of the Clayton Act. As we said in Philadelphia Bank, supra, at 371, for the purposes of § 7, a merger the effect of which `may be substantially to lessen competition' is not saved because, on some ultimate reckoning of social or economic debits and credits, it may be deemed beneficial. The District Court stated: Ease of access to the market is also a factor that deserves consideration in evaluating the anticompetitive effects of a merger. It is not difficult for a small group of business men to raise sufficient capital to establish a new small bank when the banking needs of the community are sufficient to warrant approval of the charter. 306 F. Supp., at 659. Appellees, however, made no attempt to show that a group of businessmen would move to start a new bank in Phillipsburg-Easton, should the proposed merger be approved. The banking laws of New Jersey and Pennsylvania severely restrict the capacity of existing banks to establish operations in one town. Relying on a recent New Jersey banking statute, N. J. Stat. Ann. § 17:9A-19 (Supp. 1969), appellees contend that [t]here is no doubt that the three banks in Phillipsburg. . . are fair game for attractive merger proposals by the large banks from Bergen, Passaic, Essex, Hudson and Morris Counties. But, as the District Court pointed out, Large city banks in Newark and in other well populated cities in the counties mentioned can now establish branch banks in Warren County [only] in any municipality in which no banking institution has its principal office or a branch office and in any municipality which has a population of 7,500 or more where no banking institution has its principal office . . . . 306 F. Supp., at 660. Thus, mergers under § 17:9A-19 are possible in Phillipsburg only with the three banks now in existence there. Accordingly, mergers under this statute would not bear upon the anticompetitive effects in question, because they could not increase the number of banking alternatives in one town. Since the decision below, the Court of Appeals for the Third Circuit has held that a national bank may avoid the New Jersey bar against branching, N. J. Stat. Ann. § 17:9A-19 (B) (3) (Supp. 1969), by moving its headquarters into a protected community, such as Phillipsburg, while simultaneously reopening its former main office as a branch. Ramapo Bank v. Camp, 425 F. 2d 333 (1970). We intimate no view upon the correctness of that decision. We do observe, however, that the District Court decision in Ramapo Bank, affirmed in the recent Court of Appeals ruling, was handed down almost five months before the present District Court decision. Both opinions were written by the same District Judge. Accordingly, had an outside national bank been interested in moving its main office to Phillipsburg, no doubt this fact would have been made known to the District Court or to this Court. Nothing in the present record suggests that any national bank now located outside Phillipsburg will apply to move its main office to that city; therefore, on the record before us, that possibility does not bear on the anticompetitive effects of the merger.