Appendix — Cargill, Inc. v. Monfort of Colo., Inc.

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In THE

Supreme Court of the United States

OcToser TERM, 198.

CARGILL, INC. and EXceL CORPORATION,

Petitioners,

MONPORT OF COLORADO, INC.,

Respondent.

APPENDICES TO

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Of Counsel: Rosert F HANLEY *

PHILLIP AREEDA RONALD G. CARR

“Cambridge, Massachusetts W STEPHEN SMITH

MORRISON & FOERSTER

2000 Pennsylvania Ave., N.W.

Washington, D.C. 20006

(202) 887-1500

Counsel for Petitioners

Cargill, Inc. and

Excel Corporation

* Counsel of Record

September 19, 1985

Whueor . frase Peete Co. nc. . 768-0006 . Waeemmoeron OC 20001

D 1 —

the District of Colorado am

Order of the Supreme Court of the United States

E. Order of the Supreme Court of the United States

Extending Time to File Petition for Writ of

Statutory Provisions Involved

F. Clayton Act § 7, 15 U.S.C. § 15 (1982)

G. Clayton Act § 16, 15 U.S.C. § 26 (1982)

Statement Pursuant to Rule 28.1 *

7 5

APPENDIX A

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

Nos. 83-2588

84-1305

MONFORT OF COLORADO, INC.,

Plaintiff-A ppellee,

CARGILL, INC. and EXCEL CORPORATION,

Defendants-A ppellants.

Appeal from the United States District Court

for the District of Colorado

(D.C. No. 83-F-1318)

[Filed April 23, 1985]

Robert F. Hanley (Ronald G. Carr, Alan K. Palmer, and

W. Stephen Smith with him on the briefs), of Morrison

& Foerster, Denver, Colorado, for Defendants-Appellants.

William C. McClearn (James E. Hartley and Marcy G.

Glenn with him on the briefs) of Holland & Hart, Denver,

Colorade, for Plaintiff-Appellee.

Before LOGAN, BREITENSTEIN, and McWILLIAMS,

Circuit Judges.

LOGAN, Circuit Judge.

Monfort of Colorado, Inc. has brought this private anti-

trust action seeking to enjoin its competitor, Excel Corpo-

ration, a wholly owned subsidiary of Cargill, Inc. (herein-

after defendants or Excel), from acquiring another com-

petitor, Spencer Beef Division of Land O’Lakes, Inc.

Defendants appeal the district court’s grant of a perma-

nent injunction prohibiting Excel from acquiring Spencer

Beef. See Monfort of Colorado, Inc. v. Cargill, Inc., 591

F. Supp. 683, 710-11 (D. Colo. 1983). Defendants also

appeal an enforcement order that the district court issued

after defendants acquired one of Spencer Beef’s plants

in spite of the original injunction.

Plaintiff Monfort packs and fabricates beef at plants

in Greeley, Colorado, and Grand Island, Nebraska. It is

the fifth largest beef packer in the country. Defendants

Cargill and Excel operate four integrated beef packing

and fabrication plants in Kansas, Missouri, and Texas, a

slaughter facility in Nebraska, and a fabrication plant in

Kansas. Excel is the second largest beef packer in the

United States. Its parent company operates subsidiaries

in at least thirty-five countries.

Spencer Beef, which Excel seeks to acquire, is a divi-

sion of the agricultural cooperative Land O’Lakes, Inc.

and was the third largest beef packer in the United States

when all of its plants in Spencer, Iowa, Oakland, Iowa,

and Schuyler, Nebraska were operating. Spencer’s Schuy-

ler plant, which has been closed for more than two years,

591 F. Supp. at 689, is approximately sixty miles from

Monfort’s Grand Island plant. Spencer and Land O’Lakes

are not parties to this litigation, although at one time

they sought to intervene. See Monfort of Colorado, Inc. v.

Cargill, Inc., No. 84-1060 (10th Cir. Aug. 8, 1984) (ap-

peal dismissed}.

Monfort brought this suit in July 1983, seeking an in-

junction under section 16 of the Clayton Act, 15 U.S.C.

§ 26. It claimed that Excel’s proposed acquisition of

Spencer Beef would violate section 7 of the Clayton Act,

15 U.S.C. § 18, and section 1 of the Sherman Act, 15

U.S.C. §1. This case presents the significant threshold

issue of whether a company has standing to seek a sec-

tion 16 injunction against its competitor’s horizontal

acquisition of a competing firm. It also presents questions

concerning the propriety of the proposed acquisition un-

der section 7, as well as the propriety of a partial acquisi-

tion of assets once a district court has enjoined the origi-

nally proposed transaction. We find that Monfort has

antitrust standing, that the district court properly granted

Monfort’s request for an injunction, and that Excel’s

subsequent acquisition of a Spencer Beef plant violated

this injunction. Therefore, we affirm the district court’s

judgments.

The threshold issue is whether Monfort has antitrust

standing to challenge this merger. The landmark case

governing analysis of antitrust standing is Brunswick

Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977),

with its oft-quoted holding that “[p]laintiffs must prove

antitrust injury, which is to say injury of the type the

antitrust laws were intended to prevent and that flows

from that which makes defendants’ acts unlawful.” Id.

at 489 (emphasis in original). Brunswick involved a

claim for damages under section 4 of the Clayton Act;

the Court there was particularly concerned with section

4’s specific reference to injury: suit may be brought only

by persons “who shall be injured.” See 429 U.S. at 485-

86. In Section 16 injunction cases, however, the courts

do not require proof of actual injury because they need

not calculate damages. Instead, they follow section 16’s

command to apply equitable standards for an injunction.

See, e.g., Cia. Petrolera Caribe, Inc. v. Arco Caribbean,

Inc., 754 F.2d 404, 407-08 (Ist Cir. 1985); Christian

Schmidt Brewing Co. v. G. Heileman Brewing Co., 753

F.2d 1354, 1357-58 (6th Cir. 1985), cert. dismissed, 53

U.S.L.W. 3620 (U.S. Feb. 14, 1985). The Supreme Court

has held that because section 16 does not require actual

injury it does not foreclose antitrust claims for which

the injury has yet to occur. See Zenith Radio Corp. v.

Hazeltine Research, Inc., 395 U.S. 100, 130 (1969).

The antitrust claims in this case and in Brunswick

involve both a remedial statute, section 16 or section 4,

and a substantive statute defining the antitrust viola-

tion, section 7 of the Clayton Act. To obtain antitrust

standing a plaintiff must meet the threshold requirements

of both the remedial and substantive statutes. In Bruns-

wick the Court observed that to recover section 4 dam-

ages for a section 7 violation a plaintiff must prove more

than that defendant violated section 7. See 429 U.S. at

486. The same is true in a section 16 case, but the

threshold of proof beyond the section 7 violation remains

lower than it would be in a section 4 case. See Board of

Regents of the University of Oklahoma v. National Col-

legiate Athletic Association, 707 F.2d 1147, 1151 (10th

Cir. 1983), aff'd, —— U.S. ——., 52 U.S. L. W. 4928 (U.S.

June 27, 1984) (certiorari not sought on standing issue,

id. at 4931 n.14); see also Schoenkopf v. Brown & Wil-

liamson Tobacco Corp., 637 F.2d 205, 210 (3d Cir. 1980).

The practical result of this distinction is that in a sec-

tion 16 case, because actual injury need not be shown, it

is much easier for a plaintiff to show causation of its

hypothetical antitrust injury by a putative antitrust vio-

lation. The Court in Brunswick recognized this distinc-

tion by not foreclosing plaintiffs in that case from seek-

ing an injunction even though they lacked standing to

seek damages.' See 429 U.S. at 491.

1 We also note that Professor Areeda's law review article which

apparently influenced much of the Brunswick analysis, see, ¢.g.,

429 U.S. at 487 n.11, recognized potential differences between anti-

trust standing analysis in claims for section 4 damages and claims

for a section 16 injunction. See Areeda, Antitrust Violations

Without Damage Recoveries, 89 Harv. L. Rev. 1127, 1139 (1976)

(denying standing to section 4 plaintiffs “does not leave society

Therefore, when we consider Brunswick’s requirements

for antitrust standing in this section 16 case, the Court’s

concerns with restricting section 4 cases, in part because

of the peculiar risks of unrestrained treble damages

claims, are of little consequence. See, e. g., id. at 485-88;

see also Associated General Contractors of California,

Inc. v. California State Council of Carpenters, 459 U.S.

519, 543-45 (1983) (discussing problems of duplicate

recovery and complex apportionment of awards in section

4 cases); Blue Shield of Virginia v. McCready, 457 U.S.

465, 473-75, 475 n.11 (1982) ; Illinois Brick Co. v. Illinois,

431 U.S. 720, 746 (1977) (Clayton Act section 4 was

intended to compensate victims of antitrust injury as

well as to deter antitrust violations). Thus most of the

Supreme Court and lower court cases that have addressed

antitrust standing are distinguishable in a section 16

case because they involve treble damages and section 4’s

actual injury requirement.

In a section 16 case, Brunswick mandates only an in-

quiry into the causal connection between the threatened

injury and the putative antitrust violation. If a plaintiff

surmounts this causation hurdle it has standing to seek

an injunction. Of course it still must satisfy section 16’s

requirements in order to obtain the injunction,? and in

remediless, however, as both private equitable relief and govern-

ment action are available ; see also II P. Areeda & D. Turner,

Antitrust Law { 335e at 176 (1978) (noting important differences

between section 4 damage actions and section 16 injunctive ac-

tions); L. Sullivan, Antitrust § 247 at 772 (1977) (noting lower

threshold for section 16 actions because loss must only be

threatened) . |

2 Section 16 specifically refers to common law standards for

equitable relief. Excel has not specifically objected to the district

court's finding that Monfort satisfied section 16’s requirements

for impending harm. See 591 F. Supp. at 709-10. Excel does object

to some of the fact findings supporting the injunction and we

dispose of those objections in Section II, infra. But Monfort’s

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n Carcass beef is beef sold im entire carcass form to wholesalers,

retailers and independent fabricators for fabrication. Appellants’

at 591 F. Supp. at 689-90.

Brief at 38.

15a

704. Finally, it declined to include fabricators who cur-

rently vacuum pack none or only a portion of their out-

put because of a lack of evidence of whether such firms

exist, and if they do, what amount of beef they pro-

duce. Id. The court defined the geographic market for

boxed beef to encompass the entire United States. Id.

at 704. It rejected Excel’s argument that imported beef

should be included. /d.

We review the district court’s definition of relevant

markets under the clearly erroneous standard. Telex

Corp. v. IBM Corp., 510 F.2d 894, 915 (10th Cir.), cert.

dismissed, 423 U.S. 802 (1975). Excel raises on appeal

the same arguments regarding market definition that it

asserted unsuccessfully in the district court. The district

court conscientiously addressed each contention. From

our review of the record we cannot say that any of the

district court’s conclusions on market definition are

clearly erroneous.

Excel would have preferred that the district court use

the current Justice Department Merger Guidelines, 47

Fed. Reg. 28,493 (1982), revised, 49 Fed. Reg. 26,823

(1984), both to define relevant markets and to ascertain

whether the acquisition will substantially lessen competi-

tion. We agree with the district court’s decision not to

rely on these Guidelines. See 591 F. Supp. at 695-96.

On the issue of market definition, a decision based on

these Guidelines remains as inexact as the data gathered

to make the assessment. Market definition is by its na-

ture an imprecise task. The Justice Department’s recent

revisions of the 1982 market definition standards, see,

e.g., 49 Fed. Reg. at 26,824-25, 26,828, only strengthen

our conviction that these guidelines are more useful for

setting prosecutorial policy than delineating judicial

standards.

In determining whether Excel’s proposed acquisition

would violate section 7, the district court found that sig-

16a

nificant barriers restricted entry into the beef packing

business. 591 F. Supp. at 707-08. Such entry barriers

facilitate an oligopolist’s retention of market power in

a concentrated industry.

Excel does not dispute the relevance of the inquiry

into whether entry barriers exist; it merely contests the

significance of the barriers in the beef packing industry.

Here again, we review the district court’s findings un-

der the clearly erroneous standard. See United States v.

General Dynamics Corp., 415 U.S. 486, 508 (1974).

The district court heard testimony that it would cost

a potential competitor anywhere from $20 to $40 million

to build an integrated beef packing and fabrication plant

capable of competing with Monfort or Excel. 591 F.

Supp. at 707. Such a plant would require between twelve

to eighteen months to plan and build. Id. The court con-

sidered the delay and the large capital costs significant

in view of low profit margins in the industry.” /d.

(quoting internal Excel report describing unlikelihood

of increase in competition in light of poor profitability

and large capital requirements). The court also found

barriers to entry by firms wishing to acquire existing fa-

cilities; it considered especially significant defendants’

own documents suggesting that suitable existing facil-

ities are quite searce. Id. Finally, the court also found

that “psychological” barriers to entry existed. /d. at 708.

Excel objects to the district court’s analysis by offer-

ing its own view about the economic realities of the in-

dustry. It argues that the court misconceived the in-

quiry by examining existing entry barriers in what Excel

repeatedly characterizes as “the current highly competi-

12 Excel bolsters its argument that large capital costs do not

present barriers to entry by citing the Areeda-Turner treatise.

Yet Excel’s quotation selectively ignores the context, in which the

treatise authors do conclude that capital costs may comprise barriers

to entry. See II P. Areeda & D. Turner, Antitrust Law { 409e

at 303-05 (1978).

17a

tive beef industry.” See Appellants’ Brief at 38, 41, 42.

Excel speculates now, despite its own internal documents,

that there is a high rate of return on capital investments

in the industry. It cites figures from Fortune magazine

about Monfort’s present overall success. From these it

infers that investments in new plants would also be

profitable. It suggests, further, that collusion will quickly

lead to supracompetitive rates of return, which will in

turn break down any existing entry barriers. Excel re-

futes the court’s findings about the lack of available

existing capacity by referring to its own expert’s testi-

mony, testimony that the court noted but declined to

heed. See 591 F. Supp. at 707.

We may not retry the case here on the basis of specu-

lative arguments. Nothing in the record suggests to

us that the court’s finding that entry barriers exist is

clearly erroneous.

Excel also urges that the district court should have

considered a variety of other factors that it contends

would make collusion difficult or impossible. It argues,

in effect, that when a court finds that a merger would

significantly increase a firm’s market share in what is

already a concentrated industry, the court should also

look at specific competitive aspects of the particular in-

dustry to decide whether a large market share will read-

ily translate into significant market power. Courts and

scholars have disagreed on the relevance of such “other

factors” to section 7 analysis. The current Merger Guide-

lines suggest that the Justice Department would exam-

ine these other factors in a close case. See Merger Guide-

lines § 3.4, 49 Fed. Reg. at 26,832-34 (1984).

In United States v. Philadelphia National Bank, 374

U.S. 321, 362-63 (1963), the Supreme Court indicated

that a merger should be presumed illegal when market

share information suggests a merger will result in a

significant increase in industry concentration. The Court

observed that economic data on the structure of a par-

18a

ticular market are “both complex and elusive.” Id. at

362. It did allow a narrow exception, however, if there

is “evidence clearly showing that the merger is not likely

to have such anticompetitive effects.” Jd. at 363.

The Supreme Court in United States v. General Dy-

namics Corp., 415 U.S. 486 (1974), clarified what evi-

dence other than market share might be relevant to sec-

tion 7 analysis. The Court approved of the district

court’s analysis of the structure, history, and probable

future of the coal industry, and found that market share

statistics were an unreliable indicator of market power

because of the prevalence of long-term requirements con-

tracts in the coal industry. 415 U.S. at 499, 501-04.

The Court has continued to recognize the potential rele-

vance of information on market structure beyond market

share, see United States v. Marine Bancorporation, Inc.,

418 U.S. 602, 630-32 (1974), but has offered little ex-

planation of mitigating economic factors.

Excel seeks to avail itself of the General Dynamics ex-

ception by arguing that future competitive behavior in

the beef industry cannot be judged from past market

behavior. It complains that the district court ignored

expert testimony that: many buyers of beef are large

and sophisticated; many substitutes exist for beef—such

as poultry, pork and ground beef; cattle supplies are

cyclical; individual plant costs differ widely; and high

costs prohibit companies from maintaining excess unused

production factilities. These factors do not establish that

past information about the beef industry is inherently

unreliable, nor do they resemble the factors such as long-

term contracts that the Supreme Court found relevant

in General Dynamics. Therefore, we hold that the dis-

trict court properly confined its analysis to market share

statistics plus limited information on industry structure,

history and probable future. See 591 F. Supp. at 705.

Such a narrow inquiry is faithful to the Court’s con-

cerns in Philadelphia National Bank that merger anal-

ysis stay within predictable bounds consonant with the

i area.

591 F. Supp. at 706; if the acquisition of Spencer were

to be permitted, Excel would have a market share of

20.4% and two firms (IBP is the leading firm) would

market share of 20.4% and the top two firms, IB

and Excel, would have 47.7%. See R .

Finally, Excel argues that the district court should

not have attributed any significance to Cargill’s exten-

sive financial resources as Excel's parent company. See

591 F. Supp. at 708-09. The district court relied on

Kennecott Copper Corp. v. FTC, 467 F.2d 67, 78-79

(10th Cir. 1972), cert. denied, 416 U.S. 909 (1974),

which Excel claims is no longer valid because of subse-

quent changes in FTC policy. Excel urges that an ac-

quiring firm’s deep pocket is only relevant when that

firm’s extensive resources are likely to be used in an

anticompetitive fashion. It urges us to follow the Sec-

ond Circuit’s analysis in Missouri Portland Cement Co.

v. Cargill, Inc., 498 F.2d 851, 865-66 (2d Cir.), cert.

denied, 419 U.S. 883 (1974).

We need not rule on the continued validity of Kenne-

cott Copper to affirm the district court’s approach. Even

if we were to adopt the Second Circuit’s approach, Car-

gill’s deep pocket would still be relevant to Excel’s pro-

posed acquisition. Although the district court conceded

business,

ef. Easterbrook, supra, at 267-76, 278 (describing the-

oretical instances of predation!: a wealthy parent com-

pany would surely facilitate such sustained predation.

Therefore, we find no error in the district court’s con-

Excel contends that it did not violate the spirit

the injunction by acquiring one of Spencer Beef's three

plants. It urges the court to consider the circumstances

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UNITED STATES DISTRICT COURT

D. COLORADO

Civ. A. No. 83-F-1318

CARGILL, INC. AND ExczL CorPoRaTIon,

Defendants.

Dee. 1, 1983

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in some instances, one plant may slaughter cattle and

ship the carcasses a short distance to another comi..vnly-

owned plant for fabrication. Monfort, Excel and Spencer

Beef, as well as the industry leader IBP, all possess in-

tegrated slaughter-fabrication plants.

A “breaker”, another term for an independent fabri-

cator, is a firm that fabricates carcasses but does not

slaughter cattle.

A limited amount of fabrication also occurs in cus-

tomer-owned fabrication plants. The bulk of this captive

capacity is owned by Kroger, Winn-Dixie and several

other California grocery and meat market chains. Until

recently, Safeway was also a major customer-fabricator.

The most reliable market share data suggests that beef

processing is broken down approximately as follows:

Fabrication by integrated slaughter-fabricators—60% ;

fabrication by independent fabricators—12% ; and fabri-

cation by customer-owned fabrication—12% The balance

of the fed steer and heifer slaughter (approximately

16%) is shipped in small lots and sold to local retailers

as carcasses. The carcasses are broken down and proc-

essed into primal or subprimal cuts at the local retailer

level.

The fabrication process generally yields three types of

products: (1) primal, subprimal and portion cuts which

are vacuum packed; (2) primal, subprimal and portion

cuts which are not vacuum packed; and (3) ground beef.

The term “boxed beef” refers to the process by which

primal or subprimal beef cuts are fabricated, vacuum-

packed and boxed for shipment to retailers or distribu-

tors. Under this process, the shelf life of the beef is

significantly extended.

Boxed beef is a fairly recent innovation, however, it

has gradually come to dominate’the beef i The

first important boxing technique began in the ear

mid-1960’s. Boxed beef now accounts for approximately

30a

80% of all beef received at the retail supermarket level

and at the hotel, restaurant and institutional (“HRI”)

level. Furthermore, the testimony at trial suggested that

within the next two to three years, boxed beef will ac-

count for 85%-90% of all beef received at the retail su-

permarket level and the HRI level.

III. STANDING—ANTITRUST INJURY

Section 7 of the Clayton Act prohibits the acquisition

of the assets of one corporation by another where in any

line of commerce

. . . the effect of such acquisition may be substan-

tially to lessen competition or to tend to create a

monopoly

15 U.S.C. § 18. Section 16 of the Clayton Act provides

for injunctive relief againet threatened loss or damage

by a violation of the antitrust laws, including Section 7

of the Clayton Act

. . » when and under the same conditions and prin-

ciples as injunctive relief against threatened conduct

that will cause loss or damage is granted by courts

of equity under the rules governing such proceed-

ings...

15 U.S.C. $26. It is within this statutory framework

that the court must analyze plaintiff's standing to bring

the action and to contest the matters in question. While

any harm to the plaintiff is sufficient to meet the con-

stitutional “injury in fact” requirement, Associated Gen-

eral Contractors of California, Inc. v. California State

Council of Carpenters, et al., 459 U.S. 519, 103 S8. Ct. 897,

74 L.Ed.2d 723 (1983), the court must make a further

determination whether the plaintiff is a proper party to

bring a private antitrust action. Congress did not intend

every person tangentially affected by an antitrust viola-

tion to maintain an action challenging that violation, Blue

Shield of Virginia v. McCready, 457 U.S. 465, 102 S. Ct.

3la

2540, 73 L. Ed. 2d 149 (1982); /llinois Brick v. Illinois,

431 U.S. 720, 97 8. Ct. 2061, 52 L. Ed. 2d 707 (1977);

Berger & Bernstein, An Analytical Framework for Anti-

trust Standing, 86 Vale L. J. 809 (1977). The phrase

“antitrust standing“ has traditionally been applied to

label the elements of this inquiry.

From the outset, the defendants have maintained that

the plaintiff lacked the antitrust standing necessary to

contest the proposed acquisition. At the close of plain-

tiff’s case in chief the defendants moved for involuntary

dismissal pursuant to Rule 41/b) on the grounds that the

plaintiff had failed to establish that it would suffer any

injury actionable under the antitrust laws as a result of

the proposed acquisition.

Defendants argue that the harm Monfort expects to

suffer as the result of the planned acquisition stems from

increased competition that will occur in the future, rather

than from an injury to competition stemming from the

sale. In essence, it is defendants’ argument that Mon-

fort’s claimed injury will derive from heightened competi-

tion between IBP and Excel following Excel’s acquisition

of Spencer Beef’s slaughtering and packing facilities.

Plaintiff disputes defendants’ position on this issue ar-

guing that the harm it will suffer, if the acquisition is

allowed to go forward, will be the direct result of a sale

of assets that violates Section 7 of the Clayton Act. That

being the case, plaintiff contends that it has the requisite

standing necessary to bring this action and has shown

that it is threatened with loss or damages su™cient to

invoke the court’s equitable jurisdiction available under

Section 16 of the Clayton Act, 15 U.S.C. § 26.

Plaintiff claims that if the planned acquisition is al-

lowed to go forward it will suffer losses or be

by the market characteristics that will exist following the

sale. Monfort asserts that after the acquisition the beef

slaughtering and fabrication industry will be dominated

by IBP and Excel. As noted IBP is presently the largest

integrated beef slaughterer ‘fabricator in the nation. Excel

is.the second largest firm followed by the Spencer Beef

division of Land O’Lakes, Inc. It is significant that the

Following the planned sale, Monfort contends that

Excel and IBP would attempt to enlarge their respective

market shares as rapidly as possible at the expense of

each other and, more significantly, at the expense of the

smaller competitors such as Monfort. Plaintiff argues

that to acquire increased market shares IBP and Excel

would engage in a price-cost “squeeze” bidding up the

price of the necessary raw product input supply (fed

cattle) while at the same time lowering the cost of the

finished output product (boxed beef

As a result of this squeeze, which plaintiff contends

will permit Excel and IBP to accept far lower profit

margins while they endeavor to increase market share.

In contrast to Excel and IBP, Monfort asserts that it

lacks the financial reserves necessary to with and or

participate in this squeeze and remain a viable competitor.

After Excel and IBP succeed in driving out the smaller

competitors and acquiring increased market shares, Mon-

fort contends that IBP and Excel will lower the price

paid for fed cattle and raise the price charged for boxed

beef sold nationwide. Monfort further argues that other

- competitors will be driven from the market and, because

;

and will suffer from lower prices paid to them

and meat consumers will be required to pay higher prices

for boxed beef.

the harm or injury that

competitive process. Defendants argue that, in situations

such as the one envisioned by Monfort, standing to pre-

vent the acquisition has been rejected.

After careful consideration, it is our view that the

plaintiff has established the requisite antitrust standing

necessary to challenge the planned acquisition under Sec-

tion 7 of the Clayton Act.

The notion of antitrust standing is not susceptible to

a hard and fast rule that conveniently applies to all cases.

As one commentator has noted “it is simply not possible

to fashion an across-the-board and easily applied stand-

ing rule which can serve as a tool of decision in every

case”. Sherman, Antitrust Standing: From Loeb to

Malamud, 51 N. V. U. L. Rev. 374, 407 (1976).

Recently, however, the United States Supreme Court

has attempted to identify certain factors to be considered

in determining antitrust standing. See, Associated Gen-

il ti] 1771 ay 11281.

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36a

It is uniformly agreed that in an antitrust action

seeking only injunctive relief, the question of standing

becomes less of an issue. Board of Regents of University

of Oklahoma v. N. C. Z. A., 707 F.2d 1147, 1151 (10th

Cir. 1983), cert. granted, US. , 104 S. Ct. 272,

78 L.Ed.2d 253 (1983); Jeffrey v. Southwest Bell, 518

F.2d 1129, 1132 (5th Cir. 1975); In Re Multidistrict

Vehicle Air Pollution MDI. No. 31, 481 F.2d 122 (9th

Cir. 1973) ; Von Kalinowski, Antitrust Laws and Trade

Regulation, Vol. 10 8114.01 et seg. vol. 3 § 11.15

(1983): Areeda, Antitrust Analysis 56 (3rd Ed. 1981).

Concerns about duplicate treble damages awards or the

need to make complex damages apportionment calculations

are not present in an action seeking injunctive relief

under Section 7. Because the threat of treble damages

does not exist, the court may consider more freely other

purposes behind giving private litigants an injunctive

remedy to prevent or end antitrust violations. As the

Supreme Court noted in Zenith Corp. v. Hazeltime, 395

U.S. 100, 89 S. Ct. 1562, 23 L.Ed.2d 129 (1968), Section

16 of the Clayton Act should be construed and applied to

serve the purpose of enforcing the antitrust laws and

not only to provide private relief. The availability of

injunctive relief under Section 16 “should be conditioned

by the necessities of the pubiic interest which congress

sought to protect.” Zenith Corp., supra, at 131, 89 S. Ct.

at 1580.

The defendants have argued from the outset of this

ease that the plaintiff has not alleged an injury cogniza-

ble under the federal antitrust laws. Stated another

way, the defendants contend that Monfort has not alleged

an “antitrust injury”. An antitrust injury is an injury

of the type that the antitrust laws were intended to

prevent and that flows from that which makes de-

fendants’ acts unlawful. The injury should reflect

the anticompetitive effect either of the violation or

of anticompetitive acts made possible by the violation.

37a

It should in short be the type of loss that the claimed

violations would be likely to cause.

Brunswick, supra, at 489, 97 S. Ct. at 697. While in

Brunswick the Supreme Court was defining the type of

injury for which treble damages may ultimately be recov-

ered, the court has also made it plain that the type of

injury alleged is a factor in determining antitrust stand-

ing. Associated General Contractors, supra. In other

words, as a threshold determination, a court must ask

whether the type of harm or injury alleged is the type

that the claimed violation would be likely to cause.

The plaintiff has alleged that it will be harmed or in-

jured by the market characteristics that will exist follow-

ing Excel's planned acquisition. It is plaintiff's allega-

tion that the purchase of Spencer Beef’s assets will per-

mit Excel to engage in a price-cost squeeze in an effort

to acquire a greater market share. It is realistic to be-

lieve that both IBP and Excel will be seeking a greater

market share by raising the price paid for raw products

and lowering the cost of their finished product. Because

IBP and Excel will likely match any move by the other,

any increase in market share would be at the expense

of Monfort and others.

The injury alleged by the plaintiff, as described above,

is not a cognizable antitrust injury according to the de-

fendants. Defendants argue that plaintiff’s injury results

from more vigorous competition and not from any anti-

competitive affects arising from the acquisition. Defend-

ants rely heavily on the decision in Brunswick, supra,

in support of their position.

We note that there are two crucial differences between

Brunswick and the instant case. First, Brunswick in-

volved an action for treble damages under Section 4 of

the Clayton Act. Second, it was shown by the Court in

Brunswick that the plaintiff might well suffer the iden-

tical injury without any antitrust violation. In contrast,

38a

Monfort requests injunctive reiief and at least suggests

that the potential injury would take place only if either

IBP or Excel acquired the assets of Spencer Beef.

Of more importance, however, is our view that the

harm or injury alleged by Monfort is of the type that is

likely to be caused by the alleged violation. Further, we

believe the injury to Monfort is of the type that the

antitrust laws were intended to prevent.

The purpose of Section 7 is to preclude acquisitions

that may substantially lessen competition or tend to cre-

ate a monopoly. Defendants argue that the acquisition

of Spencer Beef’s assets will increase competition rather

than decrease it. According to that argument, even an

acquisition that would foster collusion or predatory pric-

ing would not violate Section 7 because competition

would be greater and more vigorous. The argument is

not persuasive and is rejected.

The court also rejects the defendants’ contention that,

unless predatory pricing or collusive activity is imminent,

there can be no Section 7 violation and no antitrust in-

jury to plaintiff. Clearly that is not the showing that

must be made under Section 7. Under Defendants’ inter-

pretation Section 7 would be unnecessary because the

antitrust laws already prohibit that type of conduct and

permit it to be enjoined where it is occurring or where

it is imminent. See, 15 U.S.C. § 1; 15 U.S.C. § 26.

Section 7 was designed to prevent the acquisition of

one corporate entity by another where the effect of the

acquisition may be to substantially lessen competition or

to tend to create a monopoly. The section is intended to

prevent those acquisitions which set the stage for lessened

competition or create the climate or atmosphere for mo-

nopolistic behavior. The party seeking injunctive relief

need not show that a violation of another antitrust stat-

ute is imminent.

39a

Given the purpose of Section 7 plaintiff has alleged

an antitrust injury sufficient to support a finding of

antitrust standing. The plaintiff alleges that the acquisi-

tion may substantially lessen competition and that its

competitive position will be directly harmed as a direct

result of the acquisition. Further, plaintiff’s position is

that if the acquisition does not take place or if someone

other than a market leader acquires Spencer Beef, Mon-

fort would not be harmed.

Were we to accept defendant’s argument, no private

individual could contest the planned acquisition. Competi-

tors would be barred because any injury to them would

not stem from collusion or predation. Taking defendants’

position to its logical conclusion, consumers and cattle

feeders could not seek injunctive relief both because they

would not be presently harmed and because any alleged

harm in the future would be mere ephemeral possibilities,

too speculative to seek relief under Section 7.

The courts have specifically recognized that Section 7

may be violated by actions that, absent Section 7, would

nut constitute violations of other antitrust laws. FTC v.

Procter & Gamble, 386 U.S. 568, 87 S.Ct. 1224, 18 L.Ed.

2d 303 (1966). As the court stated in Procter & Gamble

If enforcement of Section 7 turned on the existence

of actual anticompetitive practices the congressional

policy of thwarting such practices in their incipiency

would be thwarted.

Procter & Gamble Co., supra at 577, 87 S.Ct. at 1229.

The position of the defendant, if accepted, would elim-

inate private enforcement of Section 7. However, Con-

gress did not intend that only the federal government

could challenge such an acquisition.

The purpose of giving private parties treble dam-

age and injunctive remedies was not merely to pro-

40a

vide private relief but was to serve as well the high

purpose of enforcing the antitrust laws.

Zenith Corp. supra, 395 U.S. at 130-31, 89 S. Ct. at 1580.

In sum we are of the view that, given the factors

mentioned by the Supreme Court in Associated General

Contractors, supra, the plaintiff has established sufficient

antitrust standing to bring an action for injunctive relief

under Sections 7 and 16 of the Clayton Act. To the ex-

tent that antitrust injury is a key factor, the plaintiff

has alleged sufficient facts to satisfy this requirement as

a part of the standing inquiry.

IV. JUSTICE DEPARTMENT MERGER

GUIDELINES

The defendants contend that this court should give

careful consideration to the analysis of the facts of this

case under the merger guidelines developed by the De-

partment of Justice. 47 Fed. Reg. 28,493 (1982). First

promulgated in 1968, the guidelines were substantially

redrafted by the Department and re-released in June of

1982.

Department of Justice Merger Guidelines are not bind-

ing on this court in our determination of the impact that

defendants’ acquisition will have on competition. The

guidelines are primarily a statement of the Justice De-

partment’s own enforcement intentions and serve as a

tool to assist Justice Department attorneys in determin-

ing which mergers to challenge. They do not represent

legal precedent to determine illegality. Indeed the Jus-

tice Department is not necessarily bound by their own

guidelines in their handling of litigation under Section 7

of the Clayton Act. U.S. Department of Justice Merger

Guidelines. § 1, 47 Fed. Reg. 28,493 and 28,494 (1982).

We have considered the Merger Guidelines in the proc-

ess of resolving this case. However, in determining

whether the planned acquisition will violate Section 7 of

4la

the Clayton Act, the Court has relied primarily on the

judicial standards developed in judicial precedents aris-

ing under Section 7.

V. RELEVANT MARKETS

Before considering whether a proposed acquisition will

have a proscribed effect on competition, it is necessary

to define the market with respect to which the competi-

tion may be said to exist:

[djetermination of the relevant market is a neces-

sary predicate to a finding of a violation of the

Clayton Act because the threatened monopoly must

be one which will substantially lessen competition

within the area of effective competition. Substan-

tiality can be determined only in terms of the mar-

ket affected.

Brown Shoe Co. v. United States, 370 U.S. 294, 324, 82

S. Ct. 1502, 1523, 8 L.Ed.2d 510 (1962), quoting from

United States v. El. du Pont de Nemours & Co., 353

U.S. 586, 77 S. Ct. 872, L.Ed.2d 1057 (1957).

In the instant case, plaintiff maintains that the pro-

posed acquisition will have potential anticompetitive

effects in two different markets: (1) the regional mar-

ket for the procurement of fed cattle (the “input” mar-

ket); and (2) the national market for the sale of packer

boxed beef (the “output” market).

At trial, knowledgeable and respected experts ren-

dered opinions that led to contrary interpretations re-

garding the scope of the relevant product and geographic

markets in the input and output markets. We have en-

deavored to determine those opinions which represent the

more probable state of events and the relative weight to

be given each. In general, however, the court found the

experts who were called by Monfort to be particularly

persuasive in that they emphasized the actual conditions

42a

in the marketplace as well as the theoretical implications

of the proposed acquisition.

A. THE INPUT MARKET

The “relevant market” concept entails two separate

dimensions: (1) the product market or “line of com-

merce”; and (2) the geographical market or “section of

the country.” Indiana Farmer’s Guide Pub. Co. v. Prairie

Farmer Pub. Co., 293 U.S. 268, 279, 55 8. Ct. 182, 185,

79 L.Ed. 356 (1934); United States v. M.P.M., Inc., 397

F.Supp. 78 (D. Colo. 1975). The product market is nor-

mally considered first because the geographic market

typically depends on the nature of the product involved.

See, e.g. United States v. Pabst Brewing Co., 384 US.

546, 555-556, 86 S. Ct. 1665, 1670-1671, 16 L.E.2d 765

(Harlan, J., Concurring) .

1. Product Market

Plaintiff maintains that the relevant product in the

input market is grain fed steers and heifers (“fed cat-

tle”). rr

uct

above. In addition, plaintiffs alleges that the produet

market should not include the facilities of slaughterers of

nonf ed cattle for the following reasons: (1) slaughterers

of fed cattle and non-fed cattle are generally in different

parts of the country; (2) cow and bull slaughtering fa-

cilities lack important economies of scale because they are

smaller than the facilities used to slaughter fed cattle;

(3) such facilities lack fed cattle fabrication facilities,

willing to buy from slaughterers who deal to any great

extent in non-fed cattle; and (5) defendants’ internal

reports indicate their belief that fed cattle constitute a

separate product market.

* — — — 2

43a

Defendants suggest that the relevant product in the

input market should include all cattle slaughtered be-

cause nonfed steers and heifers and cows and bulls are

substitutes for fed cattle. Defendants also contend that,

from the perspective of a seller of fed cattle, any pur-

chaser able and willing to purchase fed cattle is a per-

fect substitute for present fed cattle purchasers. There-

fore, defendants believe that the product market should

be expanded to account for the capacities of the following

groups which defendants assert would purchase fed cat-

tle if prices decline below competitive levels: (1) large

scale fed cattle sellers who would integrate forward into

slaughtering, and perhaps, fabrication; (2) firms that

currently purchase cows and bulls as well as fed cattle,

which would increase purchases of fed cattle; and (3)

plants that currently slaughter only cows and bulls

which would convert to fed cattle slaughter.

In determining whether products are within the same

relevant product market, it is important to consider the

functional and reasonable interchangeability of the prod-

ucts, See United States v. Z. I. du Pont de Nemours &

Co., supra; Kaiser Aluminum & Chemical Corp. v. F. T. C.,

652 F. 2d 1324 (7th Cir. 1981); United States v. Charles

Pfizer & Co., 246 F.Supp. 464, 468 (E. D. N. V. 1965); the

cross-elasticity of demand for the products, See, Brown

Shoe Co. v. United States, supra; United States v. El.

du Pont de Nemours & Co., supra; and the interchange-

ability of the products’ production facilities, See, Kaiser

Aluminum & Chemical Corp., supra; Equifax, Inc. v.

F.T.C., 618 F.2d 63 (9th Cir. 1980).

Comparing the evidence presented at trial to the case

law cited above, the Court finds that fed cattle consti-

tute the relevant product within the input market.

We reject defendants’ argument that nonfed cattle and

cows and bulls are viable substitutes for fed cattle. To

classify products in the same market, it is essential that

they be both functionally and reasonably interchangeable.

44a

In today’s market, under the evidence, we are persuaded

that nonfed cattle and cows and bulls are not function-

ally interchangeable with fed cattle. The evidence pre-

sented at trial demonstrated that grain fed steers and

heifers are the only cattle which yield beef cuts with a

consistent quality of USDA “good” or better. Ex. 74

(Pace Testimony), Att. 3 at 1-2. Furthermore, plain-

tiff’s witnesses testified that cows and bulls and nonfed

steers and heifers will not substitute for fed cattle.

Strealer, T. 20. This fact is best illustrated by the over-

whelming percentage of fed cattle compared to nonfed

cattle or cows and bulls, which are slaughtered and fabri-

cated by the parties themselves. The slaughter of cows

and bulls accounted for less than 1% of Excel’s total

slaughter in 1982. Ex. 74 (Pace Testimony), Att. 4. In

fact, cow and bull slaughter represented only 0.3% of the

1982 slaughter by major packers, including Excel, IBP,

Spencer and Monfort. Id.

Defendants further maintain that the input product

market should be expanded to include all cattle slaugh-

tered because of the claimed interchangeability of the

slaughter facilities for nonfed and fed cattle. The court

rejects this attempt to expand the product market in

this case.

The degree to which a manufacturer may employ ex-

isting facilities to produce different products is a rele-

vant facter in defining a broad product market under

Section 7 of the Clayton Act. See, e.g., Kaiser Aluminum

& Chemical < orp., supra; Equifax, Inc. v. F. T. C., surva.

However, it is necessary in making such an analysis to

adopt a realistic view of the market. In order to justify

expanding a relevant product market due to interchange-

ability of production facilities, it is necessary to focus

on what manufacturers actually do as opposed to what

they could do. Whatever modifications would be required

to change to a different type of production must be feasi-

ble from the point of view of design and cost. See, Mem-

— —

45a

orex Corp., v. I. B. M., 458 F. Supp. 423, 429 (C. D. Cal.

1978), aff'd., 636 F.2d 1188 (9th Cir. 1980), cert. denied,

452 U.S. 972, 101 S. Ct. 3126, 69 L.Ed.2d 983 (1981) ;

In re IBM Peripheral EDP Devices Antitrust Litigation,

481 F. Supp. 965, 985 (N.D. Cal. 1979), aff'd., 698 F.2d

1377 (9th Cir. 1983).

In the instant case, the court finds that the existence

of nonfed cattle slaughtering plants is not a significant

competitive cheek on fed cattle slaughterers’ pricing ac-

tivities. An exhibit from Excel’s files supports the con-

clusion that it would not be cost effective for a slaugh-

terer of nonfed cattle to switch in whole or in part to

slaughtering fed cattle:

Combining cow slaughter/processing with fed bee’

slaughter/processing has not proven to be an effi-

cient operation. During the cow liquidation of 1976/

1977 we combined a cow slaughter with a fed beef

slaughter in our Rock Port plant. The results of

this experience were unfavaroble.

Ex. 29 at 2 (Memorandum from Bill Nicholson to M.D.

MeVay, et al.)

This inefficiency apparently stems at least in part from

the fact that cow and bull slaughter plants tend to be

smaller than fed cattle slaughter plants. Jd; T. Stout.

Due to their smaller size, nonfed cattle slaughtering

plants lack some of economies of scale that exist in fed

cattle plants. The importance of such economies of scale

are of added significance in this case because of the ela-

tively low profit margin in the beef industry. Therefore,

the relative lack of such economies of scale would place

companies utilizing nonfed cattle slaughter facilities at

a comparative disadvantage in the slaughter of fed cat-

tle.

In addition, nonfed cattle slaughter facilities generally

lack fabrication facilities. Therefore, most of the non-

fed cattle slaughtering firms which might consider switch-

46a

ing to fed cattle slaughter would have to add fabrication

facilities or market their output by shipping carcasses.

As will be discussed below, transporting carcass beef is

uneconomical compared to transporting boxed beef, and

boxed beef and carcass beef should not be included with-

in the same relevant product market. Furthermore, the

lack of integrated facilities would result in such a firm

being unable to derive the benefit enjoyed by integrated

firms with respect to che efficient use of byproducts. Ex.

30 at 1 (Changes in the Beef Packing Industry, Notes

for Caprock Annual Meeting, June 24, 1983).

Finally, Mr. Monfort testified that customers who typ-

ically purchase beef graded USDA “good” or better (typ-

ically boxed beef), prefer not to buy from firms that en-

gage in a substantial volume of cow and bull slaughter-

ing.

For reasons stated above, the court finds that firms

currently slaughtering nonfed cattle would not signifi-

eantly increase their purchases of fed cattle or switch

to the slaughter of fed cattle in response to a decline in

the price of fed cattle. In addition, the court finds no

substantial evidence to indicate that large scale fed cat-

tle sellers would to any great extent integrate into the

slaughter and fabrication of fed cattle in response to a

decline in the price of fed cattle. Any resulting increase

in purchases of fed cattle would not provide a competi-

tive check on the current purchasers of fed cattle. In

light of these findings, the court is of the opinion that

the input product market should not be expanded to in-

clude all potential purchasers of fed cattle. Accordingly,

the court concludes that the procurement of fed cattle

is the relevant product within the input market. This

is the legitimate and common-sense market upon which

we will evaluate the effects of the proposed acquisition.

2. Geographic Market

The relevant geographic market for the procurement

of fed cattle is an additional issue.

47a

Plaintiff maintains that this aspect of the input mar-

ket is regional in scope. According to plaintiff, the re-

giona! procurement market includes all or parts of the

following twelve states: Nebraska, South Dakota, South-

ern Minnesota, Wisconsin, Iowa, Illinois, Missouri, Kan-

sas, Eastern Colorado, and the panhand!e region of

Texas, Oklahoma and New Mexico.

Conversely, defendants assert that the procurement

market should include the entire United States or at the

very least the United States east of the Rocky Moun-

tains. Defendants argue that any attempt to depress

prices below competitive levels would result in the diver-

sion of fed cattle sales to areas outside of the twelve

state area suggested by plaintiff.

The relevant geographic market in a case under Sec-

tion 7 of the Clayton Act is the area in which the seller

competes and in which buyers can practicably turn for

supply. United States v. Connecticut National Bank, 418

U.S. 656, 94 S. Ct. 2788, 41 L.Ed.2d 1016 (1974) ; Tampa

Electric Co. v. Nashville Coal Co., 365 U.S. 320, 331-332,

81 S. Ct. 623, 630, 5 L.Ed.2d 580 (1961). Case law indi-

cates that when analyzing the relevant geographic mar-

ket in a case such as this, it is necessary to determine

“where, within the area of competitive overlap, the effect

of the merger on competition will be direct and imme-

diate.” See, United States v. Philadelphia National Bank,

374 U.S. 321, 357, 83 S. Ct. 1715, 1738, 10 L.Ed.2d 915

(1963); F & M Schaefer Corp. v. Schmidt & Sons, Inc.,

597 F.2d 814, 817 (2nd Cir. 1979); United States v.

M.P.M., supra.

In conducting the analysis, it is critical to focus on the

commercial realities of a particular market. See, United

States v. M.P.M., supra; United States v. Phillipsburg

National Bank & Trust Co., 399 U.S. 350, 90 S. Ct. 2035,

26 L.Ed.2d 658 (1970). In particular, courts have con-

sidered the following economic factors in determining

the geographic scope of relevant markets: (1) transpor-

48a

tation costs, see, e. g., FTC v. Procter & Gamble Co., 386

U.S. 568, 571, 87 S. Ct. 1224, 1226, 18 L.Ed.2d 303

(1967) ; United States v. M.P.M., supra; (2) the local-

ized nature of demand, see, e.g., United States v. Marine

Bancorporation, Inc., 418 US. 602, 94 S. Ct. 2856, 41

L.Ed.2d 978 (1974), United States v. First National Ban-

corporation, Inc., 329 F. Supp. 1003, 1012-1014 (D. Colo.

1971), aff'd per curiam by an equally divided court, 410

U.S. 577, 93 S. Ct. 1434, 35 L.Ed.2d 507 (1973) ; and (3)

industry recognition of a particular geographic area as

a distinct market. See e.g., United States v. Phillips-

burg Nat’l Bank & Trust Co., supra; F & M Schaefer

Corp. v. C. Schmidt & Sons, Inc., supra. Two common

sources of industry recognition are the statements and

perceptions of the merging firms and other industry

members. See, e. g., F & M Schaefer Corp. v. C. Schmidt

& Sons, Inc., supra at 816-817; United States v. Kim-

berly-Clark Corp., 264 F.Supp. 439, 455 ( N.D. Cal. 1967).

Furthermore, within a broad g graphie market, an eco-

nomically significant submarket may also exist. United

States v. Marine Bancorporation, supra.

Comparing the evidence presented at trial against the

backdrop of persuasive case law, the court finds that

the relevant geographic area for the procurement of fed

cattle is the twelve state regional market described by

the plaintiff. This twelve state market is the meat pro-

ducing center of the country as it relates to fed cattle.

Although the demand for beef may be national in

scope, the evidence at trial indicated that the procure-

ment of fed cattle is relatively localized in nature. Nearly

all fed cattle are purchased less than 200 miles from the

slaughter plant. Ex. 61 at 80 (Fed Cattle Procurement

and Pricing, and Beef Packer Competition—An Empir-

ical Study, C. Ward, December 1981); Knobbe, T. 27,

Webber, T. 34-35. In fact, the evidence at trial sug-

gested that most fed cattle are purchased from feedlots

within 100 miles of the slaughter plant. Ex. 74 (Pace

49a

Testimony), Att. 25 (USDAS Report on Concentration in

the Meat Packing Industry—National Procurement Lev-

els, Sept. 24, i979 and April 29, 1980, App. 22).

As noted above, statements and perceptions of the

merging firms are common sources of industry recogni-

tion of a relevant geographic market. In the instant

ease, defendant Excel’s own statements and perceptions

confirm the localized nature of the procurement market.

For example, an internal memorandum of Excel describes

its “normal buying area” as the area within 150 miles

of its packing plants. Ex. 27 at 1 (MBPXL memoran-

dum from B. Nicholson to R.W. Watson, Oct. 26, 1982).

Furthermore, a “procurement area” map contained in

an Excel publication indicates that Excel’s primary pur-

chasing area is a geographic region comparable to the

twelve state region suggested by plaintiffs. Ex. 32B at

Doc. I. D. No. 4018 (Excel: America’s Beef Company).

Defendants contend that the procurement market

should be national in scope because it is dependent on the

nationwide demand for beef. Defendants reason that

since the demand for fed cattle and hence their price, is

derived from the demand for beef, it follows that the

price of fed cattle is determined in a nationwide market.

Defendants contend that this argument for a nationwide

procurement market is supported by the high degree of

uniformity and interdependence in the movement of fed

cattle prices throughout the continental United States.

The court recognizes that evidence of nationwide pric-

ing interdependence is some evidence in support of a

nationwide market. In the same way, localized demand

and the existence of regional price differentials support

the conclusion that a market is regional in scope.

Conflicting evidence was presented at trial regarding

the existence of price interdependence and regional price

differentials. The court, however, is persuaded as to the

existence of such differentials by defendant Excel’s own

50a

statements regarding its motivation for acquiring the

Spencer assets. In several internal memoranda, Excel or

Cargill representatives suggested that a primary reason

for the attempt to acquire Spencer Beef was the desire

to take advantage of differences in fed cattle prices

found in a regional market defined as the western corn-

belt (eastern Nebraska, western Iowa and southwestern

Minnesota). Ex 5 at Doc. LD. Nos. 554-56 (Cargill

memo from M.D. McVay to W. Watson, et al., Dec. 10,

1982); Ex. 4 at Doc. LD. 321-322 (Excel memo from

W. Watson to Finance Comm., May 25, 1983). These

statements by the defendants strengthen the conclusion

that regional price differentials exist in the procurement

market, and that the relevant procurement market in

this case is regional in scope.

Defendants also contend that the regional procure-

ment market would expand significantly in response to

an effort by current purchasers to depress the price of

fed cattle. The court, however, finds that the procure-

ment market would not significantly expand in such a

situation because of the high transportation costs in the

beef industry. The evidence at trial indicated that trans-

portation costs and shrinkage costs place substantial

limitation on the procurement market. Roberts, T. 12,

20, 26; Webber, T. 31-32, 38; Knobbe. T. 28-29, 50-51.

In addition, although the court recognizes that transpor-

tation and shrinkage costs are not as great per mile after

the first 170-200 miles, the court is persuaded by Mr.

Monfort’s testimony that such costs are still high in

proportion to the relatively small profit margins in this

industry. Accordingly, the court finds that transporta-

tion costs are a major factor which realistically confine

the procurement market to the twelve state area out-

lined by plaintiff.

In addition to the limits imposed by transportation

costs, the court notes that the scope of the procurement

market is also limited by the relative lack of facilities

5la

for the slaughter and fabrication of fed cattle outside

of this twelve state region. Although the evidence showed

that there is some slaughter capacity for fed cattle out-

side of the twelve state region, that capacity is limited.

Ex. 26 (Excel memo regarding slaughter and fabrication

capacities of United States plants, April 15, 1983). As

noted above, the twelve state region accounts for 74%

of all fed cattle marketed in the United States. Ex. 60

at 10 (Geographic Market and Prices for Fed Steers and

Heifers, USDA P & S Report, April 1982). Accordingly,

if the price of fed cattle within the twelve state region

was artificially depressed, the limited capacity outside of

the region does not appear to represent a viable alterna-

tive for purchasing, slaughtering and fabricating the

cattle fed within the region.

In several documents, Excel representatives suggested

that the general area referred to as the twelve state re-

gion is a distinct procurement market. Ex. 4 at Doc.

I.D. No. 321 (Support for Acquisition of Spencer Beef

Plants, Excel memo from W. Watson to Finance Comm.,

May 25, 1983); Ex. 19 at 7 (MBPXL Annual Report,

1981-82) ; Ex. 74 (Pace Testimony), Att. 28 (Documents

Showing Excel’s View of Procurement Areas); Ex. 70 at

4-5 (MBPXL LRPC Report, Jan. 25, 1982). These docu-

ments lend further support to the conclusion that the

twelve state region represents a distinct regional market

for the procurement of fed cattle.

In sum, the court concludes that the relevant product

in the input market consists only of fed steers and heif-

ers. In addition, the relevant geographic scope of the

procurement market is the twelve state region outlined

by the plaintiff.

B. OUTPUT MARKET

The proposed acquisition must also be analyzed in

terms of its effect on a second relevant market on the

“output” side of the beef packing industry.

52a

Monfort maintains that the relevant output market is

the national market for boxed beef produced both by in-

tegrated packers and independent fabricators. Within

that market, Monfort contends that there exists a prod-

uct submarket consisting only of packer boxed beef.

Defendants maintain that the relevant product market

on the sales side encompasses all beef, including ground

beef, packer boxed beef, boxed beef produced by inde-

pendent fabricators, non-vacuum packed beef, and car-

cass beef. In addition, defendants maintain that the

product market should be expanded to include the follow-

ing groups which allegedly would increase their sales of

boxed beef if boxed beef prices were raised above com-

pettitive levels: (1) current boxed beef producers who

could increase their production of boxed beef; (2) fabri-

eators who currently vacuum pack none or only a portion

of their output and could increase their proportion of

vacuum packed cuts; (3) firms which fabricate cows,

bulls and nonfed cattle which could turn to or increase

their fabrication of fed cattle; and (4) large retailers

which could commence or increase their own fabrication

operations.

The parties agree that the geographic market on the

sales side is the entire United States. Defendants, how-

ever, contend that the relevant output market should

also include all beef imported into the United States.

1. Product Market

In determining whether items are within the same

relevant product market, as noted above, it is important

to consider the functional and reasonable interchange-

ability of the products, the cross-elasticity of demand

for the products, and the interchangeability of the prod-

ucts’ production facilities.

Furthermore, the existence of a broad product market

does not negate the existence of an economically signifi-

53a

cant submarket. See United States v. Continental Can

Co., 378 U.S. 441, 84 S. Ct. 1738, 12 L.Ed.2d 953 (1964):

United States v. Aluminum Co. of America, 377 U.S. 271,

84 S. Ct. 1283, 12 L.Ed.2d 314 (1964); Brown Shoe Co.

v. United States, supra. The Supreme Court has sug-

gested several criteria against which the facts of a par-

ticular case may be measured:

[1] industry or public recognition of the submarket

as a separate economic entity, [2] the product’s pe-

culiar characteristics and uses, [3] unique produc-

tion facilities, [4] distinct customers, [5] distinct

prices, [6] sensitivity to price changes, and [7]

specialized vendors.

Brown Shoe, supra, 370 U.S. at 325, 82 8. Ct. at 1524

(citation and footnote omitted) (bracketed numbers

added). It is not necessary for a plaintiff to demon-

strate the existence of all seven of the factors enumer-

ated in Brown Shoe in order to demonstrate the exist-

ence of an economically significant submarke See,

United States v. M.P.M., supra.

Although there are various beef products which might

be placed within the same broad product market (i.e.

all beef), we find that boxed beef constitutes an econom-

ically significant product submarket within the beef

industry.

Initially, the court notes that the evidence at trial sug-

gested that there is strong industry recognition of boxed

beef as an economically significant product submarket.

In particular, defendants’ own documents indicated rec-

ognition of boxed beef as a separate submarket. Excel

has referred to its “basic business of buying fed cattle

and selling boxed meat,” and it has compared its per-

formance to IBP’s in “the boxed beef market in the

United States.” Ex. 16 at 2 (MBPXL Annual Report,

Jan. 18, 1981); Ex. 14 at 5 (MBPXL Annual Report,

54a

1980-81); Ex. 19 at 5 (MBPXL Annual Report, 1981-

82).

Furthermore, the court finds that ground beef should

not be included in the same submarket as boxed beef.

Although ground beef and boxed beef are, in one sense,

interchangeable as food stuffs, the two products are not

functionally interchangeable in several important re-

spects. The testimony at trial indicated that there are

many uses, particularly in the HRI sector, for which the

better cuts of beef (i.e. boxed beef) is the only suitable

product. Strealer, T. 31. In addition, the testimony at

trial demonstrated that boxed beef and ground beef are

the products of substantially different production facili-

ties. Finally, although the court heard conflicting testi-

mony regarding the relationship between the prices of

boxed beef and ground beef, it is indisputable that sub-

stantial price differentials exist between ground beef and

the better cuts of boxed beef. Ex. 74 at 17 (Pace Testi-

mony) and Att. 20 (“Hamburger and Beef Consumption

and Prices, 1971-1981”, Meat facts at 17, 1982 Ed.) The

existence of such price differentials is additional evidence

supporting the conclusion that the two products do not

belong in the same relevant market. See, Reynolds Metals

Co. v. F. T. C., 309 F.2d 223, 229 (D.C. Cir. 1962).

Therefore, utilizing in part Brown Shoe criteria, we

can only conclude that boxed beef and ground beef should

not be included in the same product submarket.

We have also considered and reject defendants’ conten-

tion that carcass beef and boxed beef should be included

55a

boxed beef, such as reduced transportation costs, reduced

labor costs, and longer shelf life, contribute to the general

superiority of boxed beef over carcass beef. This evidence

also supperts the conclusion that boxed beef and carcass

beef do not belong in the same relevant product market.

For example, Excel has estimated that the direct cost per

pound to the retailer may be reduced by 8.3% when

boxed beef is utilized rather than carcass beef. Ex. 33A

at 19-22 (Boxed Beef—The Economic Advantages). This

figure is particularly significant in light of the evidence

eitel above regarding the relatively low profit margins

in the beef industry. Furthermore, although Excel main-

tains that their estimate regarding the cost savings as-

sociated with boxed beef is a best case analysis used in

advertising, the relative advantages of boxed beef over

carcass beef are reflected in the growing dominance of

boxed beef in the beef industry. The evidence at trial

indicated that carcass beef sales currently account for

only 16% of fed steer and cattle slaughter. Moreover, the

market share of boxed beef has risen from zero to 80%

in the past 20 years, and it appears that this trend will

continue in the future. Ex. 24 at 7-8 (Excel LRPC

Report, Jan. 24, 1983); Ex. 70 at 3 (MBPXL LRPC Re-

port, Jan. 25, 1982) ; Ex. 25 at 3 (Excel LRPC Report,

April 25, 1983). An exhibit from Excel’s files concludes:

“As we have stated before, it is not a matter of if, but

a matter of when the processor puts all or just about

all of the cattle in a box.” Ex. 12 at 4 (LRPC Meeting,

Jan. 21, 1980). Finally, the court notes that Excel docu-

ments suggest that Excel, prior to this lawsuit, consid-

ered boxed beef and carcass beef to be separate products

within separate markets. Ex. 13 at 4 (MBPXL LRPC

yb eke: 1980) ; Ex. 29 at 1 (Excel memo from

B. Nicholson to M.D. MeVay, et al. Dec. 31, 1982). It

is our view and we so find that carcass beef and boxed

beef should not be included within the same relevant

product market.

For similar reasons, the court finds that the relevant

product market should not include beef fabricated at

captive fabrication facilities owned by retail supermarket

chains. Such facilities inherit the inefficiencies associated

with careass beef because, by definition, they break car-

casses that have been transported by a slaughterer. These

inefficiencies, according to evidence at trial, have resulted

in a continuing decline in the market share of such

ties as retail stores discontinue their

tions. Ex. 13 at 4 (MBPXL LRPC Report, April 21,

1980; Ex. 16 at 5 (MBPXL LRPC Report, January

1981) Ex, 25 at 3 (Excel LRC Report, 25, 1983) ;

Ex. 70 at 3 (MBPXL LRPC Report, Jan. 25, 1982)

trial

Furthermore, the testimony at indicated that cap-

tive fabrication facilities, as a result of their size and

nature, use different production

different types of production facilities than are found

integrated plants or independent fabrication plants. T.

Monfort. We note that this limited product line is not

available to many of the current purchasers of boxed beef

produced at integrated facilities and independent fabri-

57a

As noted above, the plaintiff has the burden of estab-

lishing the relevant product market in an action under

Section 7 of the Clayton Act. In the instant case, the

plaintiff failed to demonstrate that boxed beef from inde-

pendent fabricators shouid not be included in the rele-

vant product market. The court recognizes that independ-

ent fabricators may incur relatively higher transporta-

tion costs than do integrated beef producers. Ex. 13 at 7

(MBPXL LRPC Report, April 21, 1980). The court also

acknowledges that independent fabricators may, to some

extent, lack certain economies of scale possessed by inte-

grated firms. Ex. 26 (MBPXL memo listing slaughter

and fabrication capacity of plants in the United States.

Furthermore, the court recognizes that the existence of

product codes, such as the product code associated with

packer boxed beef, is some evidence of that product being

a part of an economically significant submarket. See,

M.P.M. v. United States, supra. However, the court finds

that the boxed beef produced by independent fabricators

is functionally interchangeable with boxed beef produced

at integrated facilities. In addition, the plaintiff was un-

able to quantify any substantial difference in the prices

of the two “types” of boxed beef. Finally, these two types

of boxed beef are sold to comparable customers by com-

parable vendors. Accordingly, the court finds that the

relevant product market on the sales side should include

boxed beef produced by independent fabricators.

Therefore, the court finds that boxed beef constitutes

an economically significant submarket in the beef indus-

try. The court includes within the relevant product mar-

ket all boxed beef produced by independent fabricators

and at integrated slaughter-fabrication facilities.

Defendants maintain that the relevant product market

should be expanded to account for firms which would

increase their production of boxed beef in response to an

increase in the price of boxed beef.

58a

As noted before, the degree to which a manufacturer

may employ existing facilities to produce different prod-

ucts or expand production of a particular product is a

relevant factor in defining a product market under Sec-

tion 7 of the Clayton Act. However, as outlined above,

it is necessary in making such an analysis to adopt a

realistic view of the market and focus on how manu-

facturers actually would react in a situation as well as

how they could react.

The court considered and rejects defendants’ contention

that the product market should be expanded to account

for a potential increase in the fabrication of boxed beef

by firms which currently fabr‘cate nonfed cattle and cows

and bulls. As observed before, plants which slaughter and

fabricate nonfed cattle and cows and bulls generally lack

the size and economies of scale that are found in plants

which c:crently slaughter and fabricate boxed beef. In

addition, the testimony at trial indicated that purchasers

(particularly in the HRI market) are generally unwilling

to purchase boxed beef from plants which also deal, to any

great extent, in nonfed cattle and cows and bulls. Ac-

cordingly, the court finds that the limited amount of boxed

beef which might be produced by such firms in response

to a change in boxed beef prices would not significantly

affect or expand the relevant product market.

Furthermore, the court finds that the product market

would not be significantly expanded by increased produc-

tion by fabricators who currently vacuum pack none or

only a portion of their product. The amount of beef cur-

rently produced by these fabricators is not clear nor do

we have any indication as to what extent such fabricators

might increase their production of boxed beef in response

to an increase in the price of boxed beef. In this regard,

Mr. Monfort testified that he was unaware of any firms

that currently fabricate beef but fail to vacuum pack

their product. Accordingly, the court finds that the prod-

uct market should not be expanded to account for the

59a

reactions that these firms might have in the face of an

increase in the price of boxed beef.

The court, however, accepts the defendants’ contention

that the relevant product market should reflect the capac-

ity of current producers of boxed beef to increase their

production in response to an increase in the price of boxed

beef. To the extent that these producers could and would

increase their production, that production should be in-

cluded in the relevant market. Therefore, in analyzing

the effect of the proposed acquisition, the court will note

the current capacity of the various firms that fabricate

boxed beef. However, to the extent that the defendants

maintain that the court should include a firm’s ability to

increase its capacity through acquisition or new construc-

tion, the court will consider this argument in connection

with its analysis of entry barriers in the beef industry.

In summary, the court finds that the relevant product

in the output market includes boxed beef produced at in-

tegrated facilities and-by independent fabricators. This

product market also includes the capacity of current pro-

ducers of boxed beef to increase their production in re

sponse to an increase in the price of boxed beef.

2. Geographic Market

The parties agree that the market for the sale of boxed

beef is national in scope, however, the defendants main-

tain that the geographic market should be expanded to

include beef that is imported from other countries.

The court rejects the defendants’ contention that the

relevant market should include imported beef. The evi-

dence at trial indicated that the great majority of im-

ported beef is ground beef which is ultimately used in

the production of sausage and hamburger. The court has

previously found that ground beef should not be included

within the relevant product market. Therefore, for the

reasons already discussed, imported ground beef should

60a

not be included in the relevant geographic or product

market.

VI. PROBABLE EFFECT OF THE

PROPOSED ACQUISITION

Section 7 of the Clayton Act prohibits mergers where

in a relevant product and geographical market “the ef-

fect of such acquisition may be substantially to lessen

competition, or to tend to create a monopoly.” 15 U.S.C.

§18 (1950). To establish a violation of Section 7 of the

Clayton Act, therefore, a plaintiff need only demonstrate

that the effect of an acquisition “may” be substantially to

lessen competition. The Clayton Act provides “authority

for arresting mergers at a time Wien the trend to a

lessening of competition in a line of commerce [is] still

in its incipiency.” Brown Shoe, supra, 370 US. at 317,

82 S. Ct. at 1520. For a given merger to be proscribed,

however, more is required than a “ ‘mere possibility’ of

the prohibited restraint... .” FTC v. Consolidated Foods,

380 U.S. 592, 598, 85 S. Ct. 1220, 1224, 14 L.Ed.2d 95

(1965) ; United States v. M.P.M., supra, at 90. “. . See-

tion 7 deals in ‘probabilities,’ not ‘ephemeral possibili-

ties. United States v. Marine Bancorporation, supra,

418 U.S. at 622-23, 94 S. Ct. at 2870; Brown Shoe Co.,

supra, 370 U.S. at 323, 82 S. Ct. at 1522.

Market shares and industry concentration have tradi-

tionally been viewed as two of the most important factors

used in measuring the likely anticompetitive effect of an

acquisition challenged under Section 7 of the Clayton Act.

Brown Shoe Co., supra, at 321, 82 S. Ct. at 1521. Fur-

thermore, sufficiently high concentration and market

share statistics can result in a prima facie showing of a

violation of Section 7 of the Clayton Act. See, United

States v. Philadelphia Nat’l Bank, supra, 399 U.S. at

363, 83 S. Ct. at 1741; United States v. M.P.M., supra,

at 91.

There is no clear rule regarding what level of con-

centration or market share is necessarily violative of Sec-

6la

tion 7 of the Clayton Act; however, the Supreme Court

has held acquisitions to be violations of Section 7 when

the statistical indications showed relatively low market

shares resulting from the acquisition. See, e.g., United

States v. Pabst Brewing Co., 384 U.S. 546, 86 S. Ct. 1665,

16 L.Ed.2d 765 (1966) (nationwide market for the sale

of beer, combined market share of the acquired and ac-

quiring company was 4.49% of total sales); United

States v. Von’s Grocery Co., 384 U.S. 270, 86 S. Ct. 1478,

16 L.Ed.2d 555 (1966) (Los Angeles market for the sale

of retail groceries, combined market share was 7.5% of

total sales). In recent years, these cases have been

strongly criticized. R. Posner, Antitrust Law 105-09

(1976) ; R. Bork, The Antitrust Paradox 217-218 (1978).

Nevertheless, the decisions point out that even when post

merger market shares remain relatively low, the acquisi-

tion may be anti-competitive when considering conditions

of the relevant markets.

Statistical evidence, however, is not conclusive on this

issue. Rather, it is necessary to conduct a further exami-

nation of the particular market in terms of its structure,

history, and probable future, in order to judge whether

there is a likely anticompetitive effect stemming from a

merger. In making such an analysis, it is important to

consider the level of concentration and tendency toward

concentration in the industry, see, Brown Shoe, supra,

370 U.S. at 344, 82 S. Ct. at 1534, as well as the case of

entry or barriers to entry into the relevant market. See,

Unite? States Steel Corp. v. F.T.C., 426 F.2d 592, 605

(6th Cir. 1970).

In the instant case, the court finds that there is not

merely an “ephemeral possibility” of an anticompetitive

effect arising out of the proposed acquisition; rather,

there is a distinct and significant probability that the

proposed acquisition would harm competition in both the

input and the output markets.

62a

A. Input Procurement Market

The evidence at trial demonstrated that the twelve

state market for the. procurement of fed cattle is highly

concentrated. In 1982, the four largest firms accounted

for 52% of the fed cattle slaughtered in the relevant geo-

graphic market. The two largest firms, IBP and Excel,

accounted for 37.7% of the fed cattle slaughtered in the

market. Ex. 74 Pace Testimony, Table 6 and Table 7).

The evidence at trial further indicated a trend toward

increased concentration in this market. Over the past

five years, the four firm ratio in the procurement market

has increased from 37.3% to 52%. Id.

The proposed acquisition would further increase the

high level of concentration in this market. The four-firm

ratio in the procurement market would increase from

52% to 57.5% if Excel is permitted to acquire Spencer

Beef. More significantly, following the completion of the

proposed acquisition, Excel and IBP would have an esti-

mated market share of 44.8% in the twelve state market

for the procurement of fed cattle. Id.

The concentrated nature of this market and the poten-

tial effect of the proposed acquisition is also demonstrated

by an analysis of the relative capacities of the firms in

this market. The evidence indicated that firms are “effi-

cient” if they have the capacity to slaughter at least 1,000

head of cattle per day. In fact, the testimony indicated

that a plant is relatively inefficient unless it has a slaugh-

ter capacity of 1,200 to 1,500 head of cattle per day.

T. Monfort; T. Neubauer (Ex. KKKKKKK at 3). An

effective measure of market share, therefore, is a firm’s

capacity compared to the total capacity of all firms with

the ability to slaughter over 1,000 head per day. In 1982,

the four largest firms in the procurement market pos-

sessed 60.5% of the “efficient capacity” in the market.

Ex. 74 (Pace Testimony, Table 10, Shares of Fed Cattle

Slaughter Plants with Reported Capacities exceeding

63a

1,000 Head a Day 12-State Area April 1983). This four

firm ratio would increase to 68.4% if Excel acquires

Spencer Beef. Furthermore, the proposed acquisition

would result in Excel and IBP possessing 52.1% of the

“efficient capacity” in the procurement market. Id.

Concentration levels and market share figures indicate

that the proposed acquisition may realistically harm com-

petition in the procurement market. This conclusion is

further supported by the court’s previous findings regard-

ing the trend toward concentration in the procurement

market.

B. Output/Sales Market

The evidence at trial also demonstrated a high level of

concentration and a trend toward even greater concentra-

tion in the market for the sal of boxed beef. The four

largest firms in the market accounted for 53.8% of the

boxed beef produced by integrated slaughterer-fabricators

and independent fabricators in 1982. Ex. 74 (Pace testi-

mony, Table 3, Production of Boxed Beef by Five Largest

Packers as a Percent of Estimated Total Production by

Slaughterer-Fabricators and Independent Fabricators

1982). This four firm ratio would increase to 59.5% if

Excel is permitted to acquire Spencer Beef. Id. More

significantly, however, IBP and Excel would have a com-

bined market share of 47.7% following completion of the

proposed acquisition. Id.

The effect of the proposed acquisition can also be seen

by analyzing the relative capacities of the firms in the

relevant market. The four largest firms in the output

market possessed 44.6% of the fabrication capacity within

the output market in 1982. Ex. MMMMMMM (Burnett

Testimony) ; Ex. KKKKK, Table C. This four firm ratio

would increase to 49.2% if Excel is permitted to acquire

Spencer Beef. Jd. In addition, Excel and IBP would pos-

sess approximately 39% of the fabrication capacity in the

relevant market following completion of the proposed

if one calculates market shares with respect to the “effi-

generally considered “efficient” i ca

to fabricate the equivalent of at least 1000 head of cattle

per day. In 1982, the four largest firms in the output

market possessed 63.9% of the total capacity of all firms

with the ability to fabricate at least

Ex. 74 (Pace Testimony, T 5). This fou

would increase to 71.5% if Excel is permitted to acquire

Spencer Beef. In addition, Excel and IBP currently pos-

sess 48.1% of the efficient capacity in

If Excel is permitted to acquire Spencer Beef, Excel and

IBP would have a total of 55.9% of the efficient capacity

within the output market. /d.

2 8

regarding the trend toward concentration in the output

market. Accordingly, the court finds that the plaintiff

has made a prima facie showing that the proposed ac-

quisition violates Section 7 of the Clayton Act.

C. Entry Barriers

A party seeking to enter one or both of the markets

defined above could secure such entry by building new

facilities or by acquiring facilities currently in existence.

There are, however, significant entry barriers which

would limit potential entrants regardless of whether they

sought entry through new construction or acquisition.

Although testimony differed regarding the overall cost

and time period associated with building new slaughter

and fabrication facilities, the evidence indicated that such

costs and time delays represent significant barriers to

entry into the relevant markets. Mr. Monfort testified

that a minimally viable size for an integrated plant would

be a plant with a capacity to slaughter and fabricate

1,500 head of cattle per day. Mr. Monfort further testi-

fied that construction of such a plant would cost approxi-

mately $40 million. In addition, Mr. Monfort stated that

it would take three to six months to plan such a plant,

the other hand, testified that a plant would

had the capacity to slaughter and fabricate

1,200 head per day. Mr. Neubauer estimated that it

cost million to build such a

construction of the plant

be completed within twelve to eighteen months. Mr.

Neubauer further testified that an independent slaughter

or fabrication facility would cost approximately $10 mil-

lion. Ex. KKKKKKK (Neubauer Testimony, {{ 10-13,

16, 30).

The court rejects defendants’ contention that these

costs and delays do not constitute barriers to potential

entrants into the relevant markets. Defendants’ internal

We do not anticipate any increase in competition

within the foreseeable future for two reasons: poor

profitability within the business, and large capital

requirements needed for new plant and equipment.

Ex. 70 (MBPXL LRC Report, January 25, 1982).

Significant barriers also restrict entrance into the rele

vant markets by firms seeking to acquire existing facili-

ties. Initially, the court notes that substantial refurbish-

ing costs typically face any firm seeking to acquire such

facilities. More significantly, however, the evidence at

66a

trial indicated that the lack of available facilities is also

a limit on entry through acquisition. T. Monfort. The

testimony is in conflict on this point in that Mr. Neubauer

testified that there are numerous facilities available for

acquisition. The defendants’ own documents, however,

indicate the lack of such facilities. In this regard, Excel's

internal memoranda clearly indicate that it decided to

acquire the Spencer Beef plants, in part, because they

are the only viable integrated facilities available within

the twelve state procurement market. Ex. 30 at 7.

(Changes in the Beef Packing Industry, Notes for

Caprock Annual Meeting, June 24, 1983).

We are persuaded that both the lack of facilities and

the cost associated with refurbishing old facilities con-

stitute significant barriers to any party seeking to enter

the market by acquiring existing facilities.

There are additional factors which serve as barriers

for entry into the input and output markets. Mr. Mon-

fort testified that even if one can finance the costs of ini-

tial construction or acquisition, the industry is such that

it takes a substantial amount of time to achieve even a

minimum level of market penetration. In addition, there

are “psychological” barriers to new entrants arising out

of the high level of concentration in the beef industry.

Ex. 16 at 7 (MBPXL LRPC Report, January 1981). Al-

though these factors, standing alone, do not constitute

absolute entry barriers, they certainly restrict access to

the input and output markets.

The evidence at trial indicated that there has been

just one major entrant into the two relevant markets in

recent years, the Val-Agri Company. In March 1983

Val-Agri entered the industry by purchasing existing

plants in Garden City, Kansas and Amarillo, Texas.

There are conflicting estimates regarding the overall cost

incurred by Val-Agri in acquiring and refurbishing its

plants. Nevertheless, it appears that the total price was

at least $25 million.

67a

We are not persuaded that Val-Agri’s entry into the

beef industry indicates a lack of significant entry bar-

riers. Initially, the court notes at this time Val-Agri has

yet to commence full operations. Therefore, it is difficult

to assess its impact within the two relevant markets.

More significantly, however, the court notes that Val-

Agri entered the industry through acquisition of existing

facilities. As we mentioned above, defendants’ own docu-

ments indicate a lack of additional viable plants avail-

able for acquisition within the relevant markets.

We also note that the meat packing industry, as it re-

lates to the issues in this case, may be characterized as

a mature industry. No substantial changes in the indus-

try can be expected. T. Monfort. Greater automation or

use of processing robots are not anticipated in the fore-

seeable future. Thus, a new entrant into the market

will be unable to acquire market power by developing

or adopting new processing techniques. Rather, the ma-

ture nature of the industry will enhance the ability of

the current industry leaders to continue their domination

of the input and output markets described above.

D. The Size of the Acquiring Entity

The size of the acquiring and acquired entities is a

relevant factor in assessing the likely effect of a pro-

posed acquisition. Kennecott Copper Corp. v. F. T. C., 467

F. 2d 67, 68 (10th Cir. 1972), cert. denied, 416 U.S. 909,

94 8. Ct. 1617, 40 L.Ed.2d 114 (1974); see also Reynolds

Metals Co. v. F.T.C., supra, at 229. In Kennecott, supra,

the Court of Appeals for the Tenth Circuit explained the

importance of considering the potential effect of an ac-

quisition involving parties with great financial resources:

Kennecott takes strong exception to the Commission’s

consideration of the anti-competitive effect of its

great financial resources . The Commission rea-

soned that it was likely that this “deep pocket” of

68a

funds would be employed to acquire vast coal re-

serves and massive mining developments to enable

Kennecott to compete for long-term utility supply

contracts and thus to gain more market share

The court is aware that Kennecott involved the merger

of two large corporations with tremendous resources,

while the instant case involves one large corporation ac-

quiring a relatively smaller operation. However, the

used by the court in Kennecott is applicable in

because the proposed acquisition would

industry being dominated by two cor-

ll and Occidental Petroleum Corpora-

flit

111

t Excel is a wholly owned subsid-

n fiscal year 1981-82, Cargill, Inc. re-

in the billions of dollars. (See seques-

Ht,

(fel

of Excel’s recent growth. Ex. 17 (MBPXL LRPC Report,

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71a

try. We must gain shares from the leader (IBP)

and inhibit the smaller processor’s share.

Exhibit 24 at 4 (Excel LRPC Report, January 24, 1983).

This document emphatically supports Monfort's argu-

ment that Excel plans to take steps to manipulate the

market in an effort to inhibit small processors and ac-

quire an increased market share.

While Monfort does not allege that IBP and Excel will

in fact engage in predatory activities as part of the cost-

price squeeze, the market shares that would exist follow-

ing the acquisition, coupled with the acknowledged diffi-

culties in acquiring greater market share by other meth-

ods make such practices a distinct possibility. The like-

lihood of predatory pricing is heightened by the vast

financial resources available to both Excel and IBP, re-

sources not available to the plaintiff.

Monfort is realistically threatened with a significant

injury personal to itself. Moreover, the threatened in-

jury is proximately related to the violation of Section 7

of the Clayton Act that would result from Excel’s

planned acquisition of Spencer Beef. Unlike the situa-

tion in Brunswick, supra, the threat to Monfort would

not exist if another entity, other than Excel or IBP,

planned to acquire the assets of Spencer Beef.

We find that Monfort has satisfied the prerequisites

necessary to seek injunctive relief under Section 16 of

the Clayton Act, 15 U.S.C. § 26.

VI. CONCLUSION

The court finds that the effect of the proposed acqui-

sition may be substantially to lessen competition or tend

to create a monopoly in the regional market for the pro-

eurement of fed cattle and in the national market for

72a

the sale of boxed beef. Therefore, the proposed acquisi-

tion violates Section 7 of the Clayton Act.

The proposed acquisition would also result in a sig-

nificant threat of irreparable injury to Monfort of Colo-

rado and to the public interest. The plaintiff has satis-

fied the requirements under Section 16 of the Clayton

Act and is entitled to injunctive relief pursuant to that

section. The acquisition of Spencer Beef by the defend-

ants will be permanently enjoined.

Given the court’s finding with respect to Section 7 of

the Clayton Act, the court does not reach or decide the

question of whether the proposed acquisition violates Sec-

tion 1 of the Sherman Act.

The court also finds that the plaintiff is entitled to an

award of costs and reasonable attorney’s fees pursuant

to 15 U.S.C. § 26. Plaintiff’s complaint contains a claim

for costs and attorney’s fees, and the plaintiff has sub-

stantially prevailed on its claim. Accordingly, the plain-

tiff is entitled to an award of costs and reasonable attor-

neys’ fees.

ORDER

IT IS HEREBY ORDERED that defendants Excel

Corporation and Cargill, Inc. are PERMANENTLY EN-

JOINED from consummating the proposed acquisition

between Excel Corporation, Cargill, Inc., and the Spen-

cer Beef Division of Land O’Lakes, Inc. The defendants

are further ENJOINED from undertaking any plan or

entering into any agreement, the effect of which would

be to allow the acquisition, merger, consolidation, opera-

tion or in any other way permit the combination of the

ownership or operation of the beef packing businesses

of defendants and the Spencer Beef Division of Land

O’Lakes, Inc. Judgment will enter for Plaintiff Monfort

of Colorado on its claim for injunctive relief.

IT IS FURTHER ORDERED that plaintiff Monfort

of Colorado, as a prevailing party, is entitled to an award

73a

of costs and reasonable attorneys’ fees pursuant to 15

U.S.C. § 26. The Court will enter additional orders at

a later date regarding the award of attorneys’ fees.

Accordingly, the Clerk of the Court is hereby DI-

RECTED to enter judgment in favor of plaintiff, Mon-

fort of Colorado, and against the Defendants, Cargill,

Inc. and Excel Corporation, on plaintiff’s complaint for

injunctive relief.

74a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE TENTH DISTRICT

MARCH TERM—APRIL 23, 1985

Before Honorable James K. Logan, Honorable Jean S.

Breitenstein and Honorable Robert H. McWilliams, Cir-

cuit Judges.

Nos. 83-2588—84-1305

MONFORT OF COLORADO, INC.,

Plaintiff-A ppellee,

vs.

CARGILL, INC. and EXCEL CORPORATION,

Defendants-A ppellants.

(D.C. No. 83-F-1318)

JUDGMENT

Tunis cause came on to be heard on the record on appeal

from the United States Distirct Court for the District

of Colorado, and was argued by counsel.

Upon consideration whereof, it is ordered that the

judgment of that court is affirmed.

/s/ Howard K. Phillips

HOWARD K. PHILLIPS

Clerk

75a

APPENDIX D

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

Civil Action No. 83-F-1318

MONFORT OF COLORADO, INC.,

4 Plaintiff,

CARGILL, INC. and EXCEL CORPORATION,

Defendants.

[Filed Dec. 1, 1983

JUDGMENT

Pursuant to and in accordance with the Memorandum

Opinion and Order dated and signed December 1, 1983,

by the Honorable Sherman G. Finesilver, District Judge,

it is

ORDERED AND ADJUDGED that judgment be en-

tered in favor of plaintiff and against the defendants on

plaintiff’s complaint for injunctive relief. It is,

FURTHER ORDERED that the plaintiff shall have

its costs upon the filing of a Bill of Costs with the Clerk

of this Court within ten (10) days after entry of this

judgment.

DATED at Denver, Colorado, this Ist day of Decem-

ber, 1983.

FoR THE Court:

JAMES R. MANSPEAKER

Clerk

By: /s/ Stephen P. Ehrlich

STEPHEN P. EHRLICH

Chief Deputy Clerk

76a

APPENDIX E

SUPREME COURT OF THE UNITED STATES

No. A-952

CARGILL, INC. and EXCEL CORPORATION,

Applicants,

MONFORT OF COLORADO, INC.,

ORDER EXTENDING TIME TO FILE PETITION

FOR WRIT OF CERTIORARI

UPON CONSIDERATION of the application of counsel for

petitioner (s).

It Is ORDERED that the time for filing a petition for

writ of certiorari in the above-entitled cause be, and the

same is hereby, extended to and including September 20,

1985.

s/ Byron R. White

Associate Justice of the Supreme

Court of the United States

Dated this 21st

day of June, 1985.

77a

APPENDIX F

15 U.S.C. 818

§ 18. Acquisition by one corporation of stock of another

No person engaged in commerce or in any activity af-

fecting commerce shall acquire, directly or indirectly,

the whole or any part of the stock or other share capital

and no person subject to the jurisdiction of the Federal

Trade Commission shall acquire the whole or any part

of the assets of another person engaged also in commerce

or in any activity affecting commerce, where in any line

of commerce or in any activity affecting commerce in any

section of the country, the effect of such acquisition may

be substantially to lessen competition, or to tend to create

a monopoly.

No person shall acquire, directly or indirectly, the whole

or any part of the stoch or other share capital and no

person subject to the jur ‘iction of the Federal Trade

Commission shall acquire the whole or any part of the

assets of one or more persons engaged in commerce or

in any activity affecting commerce, where in any line of

commerce or in any activity affecting commerce in any

section of the country, the effect of such acquisition, of

such stocks or assets, vr of the use of such stock by the

voting or granting of proxies or otherwise, may be sub-

stantially to lessen competition, or to tend to create a

monopoly.

This section shall not apply to persons purchasing such

stock solely for investment and not using the same by

voting or otherwise to bring about, or in attempting to

bring about, the substantial lessening of competition. Nor

shall anything contained in this section prevent a cor-

poration engaged in commerce or in any activity affecting

commerce from causing the formation of subsidiary cor-

porations for the actual carrying on of their immediate

lawful business, or the natural and legitimate branches

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.