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Maybe I am presuming, and I apologize if I am, but I believe, and I think you gentlemen believe that it is as much the duty of the Congress to consider the future economic trends as it is to worry about possible omissions in the laws or statutes which might have taken place theretofore.
Now, we all know we are going to have a very substantial increased population in this country over the next 35 years. The experts say that it is going up 50 percent. We also know that it is going to take a great deal of investment and a great deal of expansion of business, some of which might be through mergers in part, in order to meet the problems and the
needs of jobs in services and products for that expanding population.
The CHAIRMAN. This does not mean it is going to prevent merger.
Mr. WAGNER. I am not saying it does, sir, but I am saying that anything which adds to the burden and the delay or to the problems of business is, in fact, in a sense, I believe
The CHAIRMAN. Well, should there not be delays, where a merger tends to greater monopoly or to lessen competition in any part of the country.
Mr. WAGNER. I submit, sir, the Department of Justice already has the power to prevent that.
The CHAIRMAN. No; they are greatly weakened by their lack of knowledge and they find it difficult to go in after the merger. It is difficult to get the courts to divest, sell off, or whatever you may want to call it.
Mr. WAGNER. Well, we have covered that in the written testimony so I will not go back to it. But I do want to stress this one point.
There are a lot of reasons for mergers which are not in any sense a question of restraint of trade or monopolistic. I have a list, if you care to have it for your committee records of the few that occurred to me, which are really those types which we were engaged in and which expresses the reasons for
merger, the reason for acquisition, the reason for sale of companies and if you care to have that for the committee record I would be glad to leave it with your secretary. I will not bother to go into it at this time.
There is only the one thing I would like to stress on that score, however, and that is, it is frequently necessary to have a unit of a certain economic size in order to compete adequately. You are aware of that, and so am I.
The CHAIRMAN. You understand, Mr. Wagner, that we do not object to size. I certainly do not object to size.
I wrote a book a couple of years ago and one chapter was headed with a quotation from Shakespeare's Measure for Measure:
It is wonderful to have the strength of a giant but it is tyranny to use it as a giant.
In other words, I have no objection to big business. It is what big business may do that may be tyranny. This bill does not prevent bigness nor is it intended to prevent bigness as such. We have big unions, we have big Government and we have to have big business.
Mr. WAGNER. And I am afraid that I must say at that point that small business has more to fear than other business than just tyranny from big business—and I am speaking of these smaller businesses where one of the reasons for the sale or disposition of property not infrequently is the fear of labor problems and other problems, the fear and then the tax reasons which sometimes makes it more attractive to sell out, you know, and we all know those things, and I am not preaching on that score. However, there are reasons why mergers take place and I think that if Congress finds it possible and desirable to lower the taxation—I think that a lot of the other companies will not pull out but will continue to operate and
The CHAIRMAN. That was in a speech I made before the economic group that was mentioned by one of the previous speakers. I stressed that Congress is to blame very largely for a great many mergers, particularly because of the tax situation.
Mr. WAGNER. My compliments to you.
Mr. WAGNER. That is right. Now, I would like to make one brief statement on this banking situation. If you notice in the main text of this brief we talk about the
The CHAIRMAN. Before you go further on that, I want to say this: I think, speaking for myself now, there should be eliminated from this bill reference to banking
Mr. WAGNER. On the basis because they are already properly and well covered in the new bill
The CHAIRMAN. We should cover banks under a separate bill. Mr. WAGNER. I see. The CHAIRMAN. And I think that banks might well be out of the present bill.
Mr. WAGNER. Well, I followed what Mr. Martin, of the Federal Reserve Board, has already testified and I cannot add a great deal.
The CHAIRMAN. Well, with reference to Mr. Martin, I said that we will have to consider that question separately and not as part of this bill. Now let us address ourselves to this particular bill, because I can see that any remarks that might be addressed to the inclusion of the banks might not be relevant.
Mr. WAGNER. I would like to add one other suggestion that Congressman Miller brought up with the previous witness.
He said, would there be any objection to notification to the Justice Department without a waiting period.
The CHAIRMAN. And you heard my comments?
Mr. WAGNER. I could not. I was in the back of this room and I heard it from this angle, and I am a little hard of hearing on that side so I didn't hear it. Would you repeat it?
The CHAIRMAN. Well, let us hear your comments first.
Mr. WAGNER. Well, my comment is, No; I would have no objection to the requirement that in the case of any merger or in the case of any acquisition which was tantamount to a merger, that after the commitment had been consummated that those persons be required to make a report to the Justice Department of the fact so they would have the informaton without having to cull it out of books and pamphlets and what have you.
The CHAIRMAN. I think that same suggestion was made before the Senate Antitrust Committee last year. My reaction is that one of the principal purposes of the bill is to advise the proper authorities of a contemplated merger so the authorities can act before the merger takes
place. It is very difficult to proceed after the merger has been consummated and to unscramble what has been put together by divestiture. That is one of the main purposes of this bill and it is not just limited to giving notification after the merger had been accomplished. That is my reaction.
Mr. WAGNER. Well, sir, I am just about spent. Of course, I could go on indefinitely and spend the afternoon here but
The CHAIRMAN. Mr. Wagner, I think that we get the general tenor of your opposition. I think that you have expressed yourself very cogently and highly intelligently and the chamber of commerce has in you a good advocate. Mr. WAGNER. May I ask that my statement be put in the record ?
The CHAIRMAN. Yes, certainly, or any other data that you care to submit will be received in the record. And the record will be held open for a few days so if there is anything else you want to submit, we will be glad to receive it for the record. (Documents submitted by Mr. Wagner are as follows:)
Re H. R. 2143
SOME REASONS FOR MERGERS AND ACQUISITIONS
Submitted by Richard Wagner 1. To acquire existing facilities at cost less than new. (It is cheaper to add improvements to existing plants than to start from scratch.)
2. To acquire size compatible with the economic necessities within an industry. Considerations may be retooling, unit costs regularity of production.
3. Integration—to obtain raw materials or supplies or to add distribution and marketing.
4. To diversify products in order to avoid seasonal dips.
5. To effect savings in overhead and costs of production and thereby increase profitability.
6. To compete more effectively with larger companies—i. e., putting together two or more smaller units which when united constitute an economic entity better able to meet competition. This also may be a means to establishing adequate research facilities.
7. To obtain management talent.
8. To set up a vehicle of size sufficient to attract financing and investment not otherwise available.
9. To add territorial coverage and thereby improve competitive position. 10. For tax reasons. 11. Technological shifts within an industry or business-obsolescence.
SOME REASONS FOR SALE OF COMPANIES
Submitted by Richard Wagner 1. Aging owners or management or ill health and lack of management succession.
2. Estate problems in privately owned companies.
3. Tax considerations-capital gains versus heavy corporate and individual taxes—desire to cash in.
4. Uneconomic position of company or economic maturity.
6. “Dry rot," i. e., deterioration of competitive position, lack of research and product improvement--inept management, changing requirements.
7. Internal dissension.
TESTIMONY OF RICHARD WAGNER FOR THE CHAMBER OF COMMERCE OF THE UNITED
I am Richard Wagner, a member of the committee on policy of the Chamber of Commerce of the United States. My business affiliation is chairman of the board, Champlin Oil & Refining Co., Chicago, Ill.
I appear on behalf of the chamber to express opposition to H. R. 2143, which proposes to give the Department of Justice and the Federal Trade Commission various broad new powers in regard to corporate mergers and asset transfers.
The chamber is concerned primarily with two basic aspects of this bill.
One of these is the proposal to require that advance notice be given to the Department of Justice and the Federal Trade Commission or other appropriate board or commission when one corporation intends to acquire stock, share capital or assets of another corporation (subject to certain exclusions and exceptions), and that there be a mandatory waiting period after such notice before the transaction can be completed.
The other is the proposal to make bank-asset acquisitions subject to section 7 of the Clayton Act.
Our fundametal objections to the provisions incorporated in this measure
1. They provide for an unwarranted extension of governmental regulation of a broad range of business transactions under the guise of more effective antitrust enforcement.
2. They would increase existing dual or overlapping jurisdiction over law enforcement in the “antimerger” field. The chamber supports the aims of the antitrust laws. We recognize that a competitive economy is basic to our political and social freedom and a primary feature of private enterprise. The antitrust laws should be administered in the spirit of a fundamental purpose to foster free competitive enterprise, with a minimum of governmental interference in the conduct of business transactions. These laws should never be used as instrumentalities for extending forms of Government regulation of business or for the harassment of business.
Because of practical effects of mandatory advance notice and waiting period before a proposed merger or stock or asset acquisition can be consummated, together with other provisions of this bill, we strongly urge that such sweeping new requirements should not be enacted-especially since they cannot be justified by sound public policy considerations.
The effect of this bill would be to empower the Federal Government to block any covered merger or acquisition regardless of the motivation or actual effect of the transaction upon competition. It provides a means whereby the Federal Government, without affording the parties any hearing, or without having to find that any law violation is even suspected, can regulate, control, and prevent corporate mergers acquisitions exceeding arbitrary dollar-value measurement.
This authority could, and doubtless would, operate even to forestall acquisitions which would promote competition, as I will discuss later. The most harmful impact undoubtedly would be upon smaller and weaker concerns, for which growth or diversification through the merger or acquisition process may be the most practical, perhaps even the only feasible means of maintaining an effective competitive position or earning capacity.
Despite the unprecedented power which this measure would give to the Department of Justice and the Federal Trade Commission to prevent lawful business transactions, only weak arguments have been advanced by these agencies in support of their efforts to get this power.
Voluminous testimony by FTC and Department of Justice spokesmen has failed to substantiate their contention that effective antitrust law enforcement is hampered by the lack of such broad powers. There has been no showing that enforcement officials have been unable to proceed against mergers or acquisitions that might involve antitrust law violations, merely because the law does not contain a "prenotice" requirement. No instances have been shown where, having found that a transaction violated either the Sherman or Clayton Act, a court has refused appropriate relief merely because the transaction had been consummated.
The fear that in some possible case at some time some difficulty might be encountered in restoring the status quo is no justification for the imposition of drastic new regulations and controls.
Further, in these times of ever-increasing Federal spending and excessively high rates of taxation, it is of vital importance that Congress consider the cost to the taxpayers of administering such forms of unjustified expansion and increased duplication of Government functions as are here proposed. For it seems obvious that a substantial increase in personnel would be needed by both the Department of Justice and the Federal Trade Commission to handle the great volume of communications which the new requirements would generate.
SCOPE OF THE NOTIFICATION AND WAITING PERIOD REQUIREMENT The requirement for notice, waiting period, and furnishing of "relevant information" upon request therefor is not limited to transactions which are mergers or consolidations, or to transactions which may have the effect of substantially lessening competition or a tendency to create a monopoly.
A virtually endless list could be compiled of the types of transactions that would be covered by these requirements.
While real property to be used solely for office space or residential purposes has been excluded, assets would include land or buildings to be used for other purposes. Included also would be sales of machinery or equipment; raw materials ; leases or other interests in real estate, including oil production payments, standing timbler, mineral royalties; patents, copyrights, and licenses to use processes, to cite only a few of the many broad categories in which a great variety of routine asset transfers may occur, Even assets to be transferred pursuant to eminent domain proceedings would be covered.
EFFECT OF WAITING PERIOD REQUIREMENT
To impose a mandatory waiting period before an intended merger or acquisition can be consummated would place a serious, and often fatal, obstacle in the way of such transactions, regardless of their motivation or beneficial effect.
Many considerations make a mandatory waiting period for consummation of covered transactions impracticable. Personnel relations and relations with customers and suppliers are involved, as are market fluctuations in values of securieies or property; commitments for financing may be prejudiced or made more difficult to obtain. Perhaps even the bargaining situation of the concern from which assets are to be acquired would be weakened.
Most of such consequences would bear heaviest upon the relatively smaller and weaker concerns.
Typically, because of such considerations, time is very much of the essence in a corporate merger or acquisition. Frequently premature disclosure of plans will thwart a mutually advantageous transaction; delays in consummation of an agreement which necessarily must be negotiated without publicity enhances the risks of leaks.
There are grave dangers implicit in the enactment of a measure that would operate in so many ways to hamper or block mergers generally.
Public policy with respect to mergers must be based on an understanding of the various competitive consequences of merger activity.
Proposals such as we have here, which would operate to restrict the freedom of corporations to combine, are based on a misunderstanding of the role of mergers in a competitive economy.
Mergers are not per se anticompetitive in nature. In this regard, it is especially important to recognize the potential value of mergers which (1) result in diversification of markets and lines of products and (2) originate with the acquired company. In the first case, not only may competition be strengthened, but capital resources may be more productively employed. In the latter case, the possibility of mergers may play an important part in the development of small business; it is entirely likely that many small business ventures are launched today only because the entrepreneurs know that they will always have an opportunity to sell on reasonably favorable terms to another member of the industry. The tendency to start new businesses might be slowed down if anyone thinking of going into business for himself knew that an advantageous sale of the business at some future date could be forestalled at the whim of a Government bureau.
Available data do not reveal any serious general threat to competition as a result of recent corporate mergers. In fact, a strong case can be made for the proposition that the economy is becoming more and more competitive in many