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The CHAIRMAN. You mean to say that Presidents make impetuous remarks:
Mr. KEATING. We have had Presidents who have made impetuous remarks. I was not referring to the present President. The chairman has been here a long time, and I think that both of us remember such statements
The CHAIRMAN. I remember Hoover and I remember Harding-
Mr. Boyd. In conclusion, we therefore recommend respectfully to this subcommittee that:
(1) For nonregulated industries, the notice and additional information be required to be supplied to the Department of Justice, with that agency having to furnish the information to the Federal Trade Commission;
(2) Forty-five days should be a sufficient time to afford the appropriate governmental agency an opportunity to decide whether it wishes to take any steps to forestall a merger;
(3) The request for additional information must be of a reasonable nature which the corporation could normally be expected to meet within 30 days;
(4) Any notice or information supplied pursuant to H. R. 2143 be confidential;
(5) H.R. 2143 be amended to delete section 3 thereof;
(6) Paragraph (6) of section 1 of H. R. 2143 be amended to read as follows:
Any acquisition of real property, solely for office space or residential use, or any acquisition of unimproved real estate.
7. H. R. 2143 be amended so as to provide that it become effective January 1, 1958.
8. Even though a corporation required to do so should not give the notice with respect to merger, the bill should be amended to make it perfectly clear that where there is no restraint of completion involved, there may not be an action brought for treble damages against the noncomplying corporation.
Thank you very much for giving me this opportunity to appear, Mr. Celler.
The CHAIRMAN. Thank you, and as one fellow New Yorker to another New Yorker, I am glad to have had you here.
(The prepared statement of Mr. Boyd is as follows:)
STATEMENT BY THE AMERICAN PAPER & PULP ASSOCIATION
My name is George Boyd, Jr. I am a member of the firm of Dunnington, Bartholow & Miller, 161 East 42d Street, New York City, and am appearing as counsel for the American Paper & Pulp Association.
This statement is made on behalf of the American Paper & Pulp Association, the overall national association of the paper and pulp industry. The paper and pulp industry is the fifth largest industry in the United States, and operates in some 38 States. Some 804 paper mills are owned and operated by 493 different companies; 580,000 employees of the paper and allied products industry, together with upward of 2 million of their dependents, rely thereon for their livelihood. The payrolls of the industry amount to $2,500 million a year. The industry had net sales in 1956 of more than $1012 billion.
The paper industry is a growth industry and constant new uses are being found for its many and varied new products. Technological progress has been
great in the paper industry and all of the improvements and innovations have inured to the benefit of the consuming public.
During the past 10 years, the paper and allied products industry has made tremendous expenditures for new plant and equipment quite independent of any mergers that may have taken place. For example, in 1945, expenditures in the industry for new plant and equipment were $116 million, in 1946 expenditures were $232 million, in 1947 expenditures were $371 million, in 1948 expenditures were $383 million, in 1949 expenditures were $298 million, in 1950 expenditures were $327 million, in 1951 expenditures were $420 million, in 1952 expenditures were $364 million, in 1953 expenditures were $409 million, in 1954 expenditures were $455 million, in 1955 expenditures were $518 million, in 1956 expenditures were $814 million.
As the overall association of the paper and pulp industry, the American Paper & Pulp Association is vitally concerned with any and all legislation which could have any effect on members of the industry, and it is that interest which compels us to submit a statement and testify with respect to H. R. 2143 and related bills. For the purpose of this presentation, comment will center on H. R. 2143.
First of all, we must emphasize that the paper and pulp industry is not in disagreement with the recommendation by the President of the United States made by him in his Economic Report, transmitted to the Congress on January 24, 1956, in which he urged revision of the antitrust laws so that “all firms of significant size that are engaging in interstate commerce and plan to merge should be required to give advance notice of the proposed merger to the antitrust agencies, and to supply the information needed to assess its probable impact on competition,” as well as that portion of this year's Economic Report which called for the enactment of legislation with the “requirement of advance notification of proposed mergers that are likely to have significant effect on competition.
It should be stressed that H. R. 2143 represents a considerable improvement over the so-called premerger notification bills which were considered by this subcommittee during the last session of the 84th Congress, and we are keenly appreciative of the care and study given this bill by the distinguished chairman of this subcommittee. We should wish to devote our testimony to what seem to us as constructive improvements to this bill.
Notwithstanding the 10 exceptions to the notification and waiting period provisions of section 1 of H. R. 2143, there is no doubt that the bill would require the furnishing of extensive information to a governmental agency. We do not object on that score but we do wish to make as certain as possible that all the necessary safeguards for the business community are incorporated in the bill.
Today, there are many corporations which have owners who are looking for appropriate circumstances in which to sell out their equity interests. Their motives for selling out, while varied, may include such considerations as shortage of working capital, unavailability of new and younger management, potential Federal tax difficulties because of retention of earnings in past years, or the desire to achieve a long-sought objective of cashing in at capital gains rates on past expenditures of time and effort. These motives are not unlawful and some of them are commendable. In 1956 the President of the United States said: “Many mergers have a solid economic justification and serve the general interest by increasing competition. * * *"
We believe that many of these legitimate and useful mergers might be adversely affected by a waiting period which is too long. In our judgment, 45 days should be a sufficient time to afford an appropriate governmental agency an opportunity to decide whether it wants to take any steps against the merger. We wish to give specific endorsement to the testimony made by the General Counsel of the Department of Commerce, appearing before this subcommittee, when he urged that paragraph (6) of section 1 of H. R. 2143 which would exempt from the notification and waiting period provisions of the bill
“Any acquisition of real property, solely for office space or residential use." be amended to read as follows:
"Any acquisition of real property, solely for office space or residential use,
or any acquisition of unimproved real estate.” In our judgment the mere acquisition of unimproved real estate would not result in any restraint on competition or have any tendency to create a monopoly. Time is of the essence, both from the standpoint of the seller and of the buyer, in transactions involving the sale and acquisition of unimproved land. The effect of requiring a 60-day waiting period would be to preclude many legitimate land acquisitions because buyers would not be willing to indulge in a public auction for such property and sellers would lose the opportunity to realize at long last on what may well have been unsatisfactory investments.
We recommend that the provisions in section 1 of H. R. 2143 which would require the furnishing of "such additional relevant information within their knowledge or control as may be requested within 60 days * * *" be amended to provide that the request be of a reasonable nature which the corporation or corporations could normally be expected to meet within 30 days. This might be accomplished by limiting this type of information to material readily available in the files of the corporation. It would not be reasonable to ask a corporation to furnish information which might involve tremendous original staff work which the Federal Trade Commission or the Department of Justice should normally be expected to perform.
We believe that the simplest way of handling concurrent or successive requests for additional information would be to provide that in the case of regulated industries the notice and initial information be sent in duplicate to the regulating agency which shall in turn send one copy to the Department of Justice as a potential intervenor. In the case of nonregulated industries which would be subject to the Federal Trade Commission and the Department of Justice, it should be provided that the notice and initial information be sent in duplicate to the Department of Justice and that one copy thereof be transmitted by the Justice Department to the Federal Trade Commission. It should also be provided that the regulatory agency on the one hand or the Department of Justice on the other would have the sole right to make a demand for further information.
We suggest that H. R. 2143 be amended to make it perfectly clear that any notice or other information provided under this proposed law would be confidential and not made available to the general public and made available only to proper agencies having a legitimate interest therein. We realize that this may already be covered by present provisions of law but, since secrecy is so important to the consummation of a merger, we think that it should be specifically provided in the bill. We would further point out that the control of the duration of the administrative proceedings is largely in the hands of the Federal Trade Commission. Once the Federal Trade Commission would have secured a restraining order or an injunction, it could, for all practical purposes, kill a proposed merger by delay, even though a court (or indeed the Federal Trade Commission itself, in the unlikely event that it should find that the evidence brought out at the hearing would not support the complaint) might later determine that the proposed merger had not been illegal. The phrase "as soon as may be" at line 12 on page 8 of H. R. 2143 is intended to safeguard against such a situation but we respectfully submit that this may not effectuate the result intended, as a practical matter.
We are opposed to section 3 of H. R. 2143 which would amend section 15 of the Clayton Act to enable the Federal Trade Commission to seek a preliminary injunction or restraining order prior to the completion of a merger. We deem this proposed amendment in the law completely unnecessary and an unwarranted increase in the powers of the Federal Trade Commission, inasmuch as the Department of Justice already has the authority to seek such preliminary injunctions and its services in this respect are available to the Commission. We must also point out that there is considerable difference between litigation involving the Department of Justice and the Federal Trade Commission. In the case of the Department of Justice, litigation moves immediately into the courts. In the case of the Federal Trade Commission, there are lengthy if not protracted administrative hearings prior to the time either party has recourse to the courts. If the Federal Trade Commission is granted the power to block a merger by injunction, the result is tantamount to negating effectively the whole deal, since few parties to a merger agreement would or could await the passage of the number of years necessary for final determination of the case. The economics involved in most any merger situation would seem to require its completion within a reasonable period of time or void the whole deal.
We further suggest that the standards proposed by section 3 of the bill are so vague as to require the inclusion of the word “essential" on line 24 of page 7 immediately prior to the words “to the interest of the public.”
At the present time, there are an untold number of executed contracts, options, outstanding warrants, commitments, or other contractual arrangements, existing throughout the United States, for the purchase, at a definite date in the future, of stock or assets which would come within the ambit of H. R. 2143. This bill might prevent the consummation of some of these purchases upon its enactment into law. We, therefore, suggest that it would not only be highly appropriate but desirable to spell out in the bill an effective date which would afford a sufficient lead time to permit orderly arrangement of corporate affairs. We suggest that an appropriate effective date for the bill would be January 1, 1958. In conclusion, we therefore recommend respectfully to this subcommittee that
(1) for nonregulated industries, the notice and additional information be required to be supplied to the Department of Justice, with that agency having to furnish the information to the Federal Trade Commission,
(2) forty-five days should be a sufficient time to afford the appropriate governmental agency an opportunity to decide whether it wishes to take any steps to forestall a merger,
(3) the request for additional information must be of a reasonable nature which the corporation could normally be expected to meet within 30 days,
(4) any notice or information supplied pursuant to H. R. 2143 be confidential,
(5) H. R. 2143 be amended to delete section 3 thereof,
(6) paragraph (6) of section 1 of H. R. 2143 be amended to read as fol. lows: "Any acquisition of real property, solely for office space or residential use, or any acquisition of unimproved real estate.”
(7) H. R. 2143 be amended so as to provide that it become effective January 1, 1958.
(8) even though a corporation required to do so, should not give the notice with respect to merger, the bill should be amended to make it perfectly clear that where there is no restraint of competition involved, there may not be
an action brought for treble damages against the noncomplying corporation. The CHAIRMAN. Our next witness is the representative of the Independent Petroleum Association of America.
TESTIMONY OF H. M. MCCLURE, JR., VICE PRESIDENT, INDEPEND
ENT PETROLEUM ASSOCIATION OF AMERICA The CHAIRMAN. We will be glad to hear from you, sir.
Mr. McCLURE. Thank you, Mr. Chairman. It is a pleasure to appear, and before I give my prepared statement I certainly think that the public should be more aware and appreciative of what is done by these committees.
In the interest of time, my statement is short and, if you please, sir, I will read it and be as brief as possible and if there are any questions I would appreciate interruptions.
The CHAIRMAN. Could you epitomize your statement ?
Mr. McCLURE. Well, my statement should take about not to exceed 8 minutes, sir.
The CHAIRMAN. Proceed, sir.
Mr. McClure. My name is H. M. McClure, Jr. My home is Alma, Mich., and I am president of McClure Oil Co., an independent producing, drilling, and exploration company. I have been engaged in the production branch of the oil industry all my adult business life as were my father and grandfather. At present I also serve as vice president of the Independent Petroleum Association of America for the State of Michigan. My appearance today is in behalf of the many independent producers such as ourselves who are represented in the membership of the association.
The Independent Petroleum Association of America is a national trade association of producers of oil and natural gas. Its membership is representative of every oil- and gas-producing area in the United States.
The Independent Petroleum Association is opposed to the enactment of H. R. 2143 and other similar bills. We feel the proposed legislation is undesirable in that it would involve unnecessary Government supervision of the day-to-day activities of our economic life. As a result, we do not feel that it would constitute good government.
In addition, the proposed legislation would be most disturbing to the normal manner in which the independent oil producer and the industry in general functions. It would, therefore, have a retarding effect on our search for new reserves of oil and gas, as well as curtailing orderly development of the existing reserves.
The passage of such a bill as H. Ř. 2143, at a time when appropriation of funds for new exploration requires all the courage even a farsighted oilman can muster, would indeed be most disruptive.
It is my understanding that the announced purpose of the proposed legislation is to make more effective the existing antitrust laws. However, the effects of the legislation upon industry activities must be weighed against possible benefits. Our association represents the small-business element of the oil- and gas-producing industry.
We are, therefore, fully cognizant of the absolute necessity of strong, effective antitrust laws. If the present laws need strengthening, it seems to us the standards of existing laws should be improved rather than through the indirect approach embodied in the proposed legislation.
In order to show why we are concerned about the possible effects of this legislation, I would like to describe the normal and routine methods of operating within the oil-producing industry.
In the day-to-day activities of an oil producer, he is continuously buying and selling assets. These assets may be in the form of undeveloped leases, partially developed properties, or fully developed oil reserves. It is normal for the oil producer to buy and sell such assets on very short notice. Any substantial delay would often defeat the very purpose of such transactions.
The $2 million exemption in the present bill (H. R. 2143) would, of course, exempt many of these transactions but at the same time it would not exempt many others.
A number of actual examples could be given where material damage could and probably would have been done had the proposed bill been in effect. The following is one such example:
Three years ago a new discovery well was completed opening a new pool. The working interest in this property was owned by one socalled major oil company (25 percent) and 3 oil operators (25 percent for 1; the other 2 1212 percent each). The balance of the interest was owned by 2 investors (1212 percent each). During the 3-year period, 31 producing oil wells and 7 dry holes were drilled at a cost of $1,697,384.
Oil reserves in the amount of 3,500,000 barrels had been developed of which 420,000 barrels had been produced and sold. The development complete, the 3 independent producers together with the 2 investors drilled 4 new exploratory wells (wildcats) in another area. The fourth was a commercial well, the first three dry holes.
They needed money quickly to protect their new property. An engineering report covering the developed property was prepared at a cost of $38,640. With this report in hand, a quick exchange of prop