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this is seldom true, for the raw material or stock in trade of the coal industry can only be obtained by the purchase or lease of coal lands. Much of the desirable available coal reserves in the United States are owned by corporations, and it is usually necessary (except where coal is leased) to obtain these coal reserves by merger, consolidations, issuance of stock, or purchases of securities. Such transactions are routine occurrences and can be characterized as daily transactions in the normal conduct of business in the coal industry.

Technological advances are having some effect upon the character of the coal industry, because it is now necessary to have extensive and expensive preparation plants to prepare the coal necessary to meet the Nation's needs. These preparation plants require a much larger investment of capital than was required 15 or 20 years ago, and this, in turn, has a tendency to eliminate the fly-by-night operators from the industry. Nothing inherent in these industry characteristics or practices has ever been shown to have operated against public interest, yet such transactions will fall within the coverage of H. R. 2143 and H. R. 264 which the Congress has under consideration. Such transactions are without true antitrust significance and should be exempt from the legislation if enacted. No monopoly in coal

The coal industry has long been proud of the fact that it represents one of the outstanding examples of the free competitive enterprise system in action among the great industries of the Nation. It is comprised of more than 5,000 individual companies engaged in the production, distribution, and marketing of bituminous coal. Competition is a trademark of the industry which has always constituted one of its chief characteristics. The records of the Department of Justice and the Federal Trade Commission, as well as the courts of the land, are singularly free from Federal intervention to preserve competitive conditions attendant upon the production of coal. Furthermore, the Federal Trade Commission report on the statistics showing corporate mergers in the mining industry indicates that there were only 43 mergers in 1956 and 62 in 1955, representing a 30.6-percent reduction for the period in question. It cannot be lost upon the observer that there has been a relatively insignificant total number of mergers in the mining industry and the incidence or “trend" appears to be down rather than upward. Therefore, it should be readily understood why the producers of coal oppose H. R. 2143, H. R. 264, or similar legislation which would impose impossible reporting burdens on the industry without any corresponding contribution to the preservation of competition in the industry or in the United States. Conclusion: Proposals against public interest

We are opposed to H. R. 2143, H. R. 264, or similar legislation because (1) there has been no demonstrated need for the extension of Federal controls, (2) such legislation would impose a needless burden upon the business community, (3) such legislation would impose essentially public-utility obligations upon private enterprise organizations, (4) such legislation would increase the cost of government without any corresponding benefit to the general public, (5) such legislation would be particularly burdensome to the bituminous coal industry because of the absence of an exemption for the industry's “stock in trade”the acquisition of coal lands, and (6) such legislation is unnecessary to preserve competition in the bituminous coal industry with its 5,000 highly competitive operating companies.

In the event that the Congress should decide to enact legislation in the field, then, and in that event, we believe it imperative that such legislation include an exemption which would permit the bituminous coal industry to acquire its "stock in trade” free from Government interference by making the act inapplicable to the acquisition of necessary coal reserves.

Mr. Hall. Thank you, sir. I have one more request I would like to ask.

I have a statement of Rolla D. Campbell, president of the National Council of Coal Lessors, Inc., that I would like to have accepted in the record because I think it would be helpful on the question of the mineral reserves, and I would like to submit that for the record of the committee. The CHAIRMAN. That will be accepted.

90675-57-21

(The document referred to is as follows:)

NATIONAL COUNCIL OF COAL LESSORS, INC.,

Washington, D. O., March 20, 1957. Re committee consideration of H. R. 2143 and H. R. 264. Hon. EMANUEL CELLER, Chairman, House Judiciary Antitrust Subcommittee,

United States House of Representatives, Washington, D.C. DEAR CONGRESSMAN CELLER: In my capacity as president of the National Council of Coal Lessors, Inc., I am submittting herewith for inclusion in the record of the proceedings a statement of position with respect to H. R. 2143 and H. R. 264, which are under consideration by your committee. It was my original intention to request time for a personal appearance but circumstances have made it impossible for me to be present during the period of time scheduled for these hearings. It would be appreciated if the statement can be incorporated as a part of the record of the proceedings. Very truly yours,

ROLLA D. CAMPBELL, President.

STATEMENT OF ROLLA D. CAMPBELL, HUNTINGTON, W. VA., PRESIDENT, NATIONAL

COUNCIL OF COAL LESSORS, INC. Mr. Chairman and gentlemen of the committee, I am Rolla D. Campbell, of Huntington, W. Va. I am president of National Council of Coal Lessors, Inc., and this statement is made on behalf of that organization, which is a national trade association composed of owners of coal lands leased on a royalty basis to operating companies, and having an office at Southern Building, Washington, D. C. I have been actively engaged in the practice of law for 36 years, representing coal land owners and coal operators, and am generally familiar with all aspects of the coal business.

This statement is filed in opposition to H. R. 2143 and H. R. 264. It is my position that these bills should not pass either in their present form or in an amended form.

Now for my reasons:

The bills represent a new and very drastic change in theory and practice. They would, in my opinion, constitute a very definite interference with normal business transactions, as will be more fully set out later. Neither bill should be passed unless some definite positive overriding public need for it has been demonstrated. It is my opinion that no such overriding need has been demonstrated and that either bill, if passed, would do more harm than good. Mr. R. E. L. Hall, general counsel of National Coal Association, has gone into this point extensively, and I would like to endorse his more complete statement.

My discussion of the bills will be from the point of view of a lawyer in a relatively small community to whom the antitrust laws are seldom of active professional interest but who must nevertheless advise clients concerning them.

To me, it seems odd that a corporation contemplating a merger or acquisition of corporate assets should be required to give notice to the Government and furnish detailed information and yet not receive any determination of status. The only certain result of giving the required notice and furnishing the required information is that no fine is levied. However, the Government officials can refrain from taking any affirmative action on the notice, but can later use all the information so supplied in prosecuting the corporation. For many years I have felt that Congress should provide an administrative forum where a definite binding ruling as to the legality of a proposed merger or acquisition could be obtained by any party whose counsel was doubtful concerning the legality of the contemplated action. The law should not mandatorily require an application for determination of legality of all such transactions, but should simply offer the remedy to those who want to seek it, leaving those who decide to go their own way subject to existing rules and penalties. But under the above bills, notice and furnishing of information are mandatory instead of optional, and yet no binding administrative determination is obtained. Either the Government decides to enjoin or it decides not to enjoin. Of course, a third course could be taken, namely, the Government officials could express grave doubt as to the propriety of the contemplated action and could even go so far as to issue threats unaccompanied by injunction proceedings.

The standards of the antitrust laws, and particularly of the Sherman and Clayton Acts, are vague and general. It is quite difficult to apply them to specific situations or to anticipate with any security what the decision of a court will be on any specific set of facts. In addition to the rules being yague, the courts have frequently changed their notions of how to interpret the rules. The risks attendant on such uncertainty place a moral obligation on the Government to provide a remedy for reducing or eliminating the uncertainty for those who want to make use of the remedy.

Let us assume, however, that one of the bills is passed in its present form and becomes law. A corporation comes to me and says that it wants to negotiate for the acquisition of the stock or assets of another corporation. Here is where my troubles begin.

The first question to answer must be whether the acquiring corporation is engaged in commerce as defined in the Clayton Act. It will be a rare instance where it is not, since the definition of trade and commerce now has been broadened to include almost every single activity except organized baseball.

The next inquiry will be whether the corporation whose stock or assets are to be acquired is engaged in commerce as defined by the Clayton Act. This may present some difficulties, particularly with respect to coal land owners, many of whom are not engaged in mining. The main task I would face would be to decide whether I wanted my client to take the risks of my making a finding of facts based upon my own investigation. As a matter of prudence, I would probably conclude that regardless of what the officials of the selling corporation said about their interstate activities, I would have to act on the assumption that in some form or other the corporation is engaged in commerce as defined in the act. This may impose a hardship on the selling corporation if as a matter of fact it is not engaged in commerce.

The next question to be faced is whether the acquired corporation (or assets) and the acquiring corporation add up to $10 million. The bills are silent as to how the $10 million value for outstanding stock, surplus, and undivided profits is to be determined. Are we to take book value or are we to take current appraised value less depreciation, or are we to use the adjusted basis determined under the internal revenue laws? Let us suppose that the physical assets to be acquired are to be paid for in unlisted stock instead of cash and that there is no regular market for determining the value of the stock. Or let us suppose that the stock to be acquired has no ascertainable market value and the stock to be exchanged for it likewise has none. Here again I suppose my only safe approach would be to say that if under any conceivable method of valuation the $10 million factor is exceeded, the statute must be applied.

Our members will more likely than not be affected as "acquired” corporations rather than as "acquiring" corporations. They are usually not aggressive at expansion, yet occasionally they will acquire stock or assets of another company.

Let us suppose a corporate coal landowner is approached by an operating company for a long-term lease on a coal deposit. The lease is in the ordinary form describing one or more seams of coal on specific tracts of land. It calls for a tonnage royalty of so much per ton of output and for a minimum royalty which may be expressed in terms of a fixed dollar amount or of a minimum number of tons to be produced annually, or may be a variable amount based upon the selling price of the coal produced or upon a share of the profits or upon a price index. It probably will require the lessee to pay the property taxes on the coal or land leased. The lease will run for a specified number of years or possibly until the exhaustion of the coal leased. The lessee will probably obligate itself to mine all the minable and mechantable coal in the property leased.

The total royalties payable under the lease could exceed $5 million, but may not. The lessor corporation has not fully explored all of its lands and does not know accurately what its total coal reserves might be.

Under the law of some States, a coal mining lessee is considered as the owner of the coal in place. Of course, the precise language of the lease will be determinative of this question. But the same language which in one State will constitute the sale of the coal in place will in another State give the lessee only a leasehold estate. The language of the lease might be so restricted as to create in the lessee only a profit a prendre.

With these facts in front of me it will be necessary to decide whether the lease constitutes an acquisition by the lessee of the assets of a lessor. Certainly there is an acquisition of a legal interest in the lessor's assets. I assume that the lease would be an acquisition. It is then necessary to determine the value of these assets. Should they be valued by the cash payment made by the lessee to the lessor on the execution of the lease? Such payments are not ordinarily made, but there may be occasions when they are substantial. In the oil and gas business they are known as lease bonuses. Is such a payment to be taken as the value of the acquisition, or will the value be the total of the royalties to be paid during the life of the lease? If the latter, will the value be based upon the maximum or the minimum which might be paid or upon somebody's estimate? Or would value be determined by attempting to apply the present-day value of expected future royalty payments?

The proposed lease also raises other questions. How will we determine the capital, surplus, and undivided profits of the acquiring corporation? Is it book value, the value as determined under the income tax laws, or a value based upon appraisal? Either method of valuation could bring a different result. If the lessor corporation does not know the full extent of its coal deposits, as is very generally the case, how can it determine the question of whether the coal leased represents more than 5 percent of its own capital, surplus, and undivided profits?

Also, in connection with this transaction, it would be necessary to decide whether the coal in the ground constitutes stock in trade sold or held by the lessor corporation in the ordinary course of its business. In one sense the coal in the ground is a stock in trade, since it is the principal asset which the lessor has to sell. On the other hand, it is not property which is carried in inventory. Under the Internal Revenue Code it is classified as property used in trade or business.

Having considered the various questions above raised, let us assume that the answer is that compliance is definitely or probably necessary. Of course, the acquiring corporation must insist that the transaction be held in abeyance until the 60 or 90 days are up and, as a practical matter, it must insist upon reserving the right to withdraw from the transaction if a suit is started or if the Govern. ment questions the legality of the acquisition. How much longer must the deal be held in abeyance? Should it be for more than the 60 or 90 days if an adverse opinion is expressed by Government officials, or until conclusion of litigation if an injunction proceeding is started ?

There are so many uncertainties attached to the possibilities which could ensue after notification that the chances are the acquiring corporation would insist on an unrestricted right of withdrawal.

It is obvious, therefore, that the effect of the delay is to destroy the security of the transaction. Although the parties have agreed on all terms, the transaction has to remain in limbo at least until the requirements of the statute are met. But this may be very unfair to both parties. If the acquiring corporation is in the process of rounding up coal reserves from a number of owners, it would find its task almost impossible if, having reached agreement with certain of the owners, it could not immediately complete the transaction. Everybody interested in the area would have full public notice of all the details of the transaction agreed on, and this notice might upset negotiations of the acquiring corporation with other owners. The same delay plus publicity could have the same adverse effect on the lessor corporation if it is carrying on negotiations with several prospective lessees. Effective trading often requires secrecy.

An operating coal company acquiring the stock or assets of another operating company of course desires to acquire the operating personnel and the customers of the acquired company. Either of the bills, if passed, would make realization of these aims difficult. As soon as the transaction is given publicity, employees of the acquired corporation will be subject to raiding by competing employers. Or such employees might seek other jobs, being uncertain as to their own future. Also, competing producers would try to raid the customers of the acquired corporation and the customers might desire to make a change of suppliers, being uncertain as to how they would be treated by the acquiring corporation. If the deal should not go through, the selling corporation would be severely damaged, and, if it goes through, the acquiring corporation might get much less than it had bargained for.

I hope I have said enough to indicate a few of the practical difficulties which would face businessmen and their lawyers if one of these bills is passed, par. ticularly as they apply to coal land owners. Frankly, I find it difficult to imagine a greater deterrent to the transaction of normal routine business than the proposed bills.

Broadly speaking, I do not think that legislation along the lines of these bills should apply to acquisitions of natural resources or of companies whose principal business is the ownership or production and sale of natural resources, For such companies, the resources constitute their raw materials. Manufacturing companies buy their raw materials for processing. The raw materials are produced by others. But the company engaged in producing natural resources buys them when they are on or in the ground in their natural state. As the resources are used up and depleted, they must be replaced by new acquisitions. For the purposes of these bills they should be considered as stock in trade and specifically exempted.

If one of these bills is passed in it preent form, it will, in my judgment, be a trap for the unwary. Many small businesses will violate it unwittingly by failing to give the required notice. It will also be a deterrent to any transaction which the proposed law may bring under the scrutiny of either the Department of Justice or the Federal Trade Commission. In either case the results are bad from the point of view of the businessman and of the economy as a whole.

The bills also are defective in vesting concurrent jurisdiction to enjoin projected acquisitions of stock or asests in two government agencies, namely, the Department of Justice and the Federal Trade Commission. They may have conflicting policies as to interpretation of the law or as to enforcement. Juris-diction should be vested only in one. As between them I have no choice.

I am always somewhat disturbed when I read a bill which provides that the Government has the right to seek and obtain a temporary injunction without giving bond. Private litigants are required to give bond to protect defendants against improvident issuance of injunctions. If the Government wrongly obtains a temporary injunction, the parties should be able to recover their costs and damages from the Government.

I hope very much that neither of the bills will be favorably reported.

The CHAIRMAN. Our last witness for this morning is Mr. Richard Wagner, representing the chamber of commerce.

TESTIMONY OF RICHARD WAGNER, CHAMBER OF COMMERCE OF

THE UNITED STATES, ACCOMPANIED BY DON LESTER WAAGE, SECRETARY, FINANCE COMMITTEE, AND WILLIAM BARTON, GENERAL COUNSEL

The CHAIRMAN. Mr. Wagner, do you think you can epitomize your statement?

Mr. WAGNER. Yes, sir.

Mr. Chairman, I have with me Mr. William Barton, our general counsel, and Mr. Don Lester Waage, our secretary of the finance committee of the chamber of commerce. Mr. Barton, our general counsel, will answer any legal questions that come up, since I am not a lawyer.

I would like to say this, Mr. Chairman, that I represent the chamber of commerce as a member of the policy committee in presenting this statement. I would like to add to that, however, that while I am the chairman of the board of the Champlin Oil & Refining Co., our company has not always been in the oil business. It is now an integrated oil company, but was an investment company first, and later a venture capital corporation, and in that capacity, as head of it, I had experience with acquisitions, the financing of new enterprises, the merger of companies which we acquired, their ultimate disposition either by sale or merger or public offers.

The CHAIRMAN. I thought we were going to hear some singing from you, judging by your name.

Mr. WAGNER. I would be glad to sing for you this evening, but I don't think time permits now—as a matter of fact, he was a composer rather than a singer.

The CHAIRMAN. And a very gifted composer.

Mr. WAGNER. That is right, sir. In the course of our activities in venture-capital financing and purchase, we, of course, came before

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