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RESOLUTION UNANIMOUSLY ADOPTED BY THE BOARD OF DIRECTORS OF ALLIED STATES
ABOCIATION OF MOTION PICTURE EXHIBITORS AT THE CINCINNATI MEETING ON FEBRUARY 1 AND 2, 1957
Resolved, That Allied States Association of Motion Picture Exhibitors hereby records its opposition to any further mergers or transfers of assets or business between corporations engaged in the production or distribution of motion pictures for exhibition in theaters, a business in which competition already is restricted and in which further restrictions would be disastrous.
Resolved, further, That the officers of Allied States Association are hereby directed to alert the Attorney General, the Federal Trade Commission, the Judiciary Committees of both House of Congress, and any other appropriate Government officials or agencies of this danger and ask that they exert their full power and influence to prevent any further mergers, transfers of assets or business, or other arrangements, the effects of which may be to reduce or eliminate competition between the parties thereto or otherwise restrain interstate trade or commerce in motion-picture films.
STATEMENT OF ALVIN SHAPIRO, VICE PRESIDENT, AMERICAN MERCHANT MARINE
My name is Alvin Shapiro. I am vice president of the American Merchant Marine Institute, which represents the major portion of the owners and operators of American steamship lines operating oceangoing vessels providing service into and out of the United States ports on all three coasts.
The bills which you are considering, H. R. 264 and H. R. 2143, would, among other things, amend section 7 of the Clayton Antitrust Act by requiring shipping companies to provide advance notice to the Attorney General of acquisition of stock or assets in excess of specific amounts and by providing a waiting period 90 days in the case of H. R. 264 and 60 days in H. R. 2143—before completion of such proposed transactions. We avail ourselves of this opportunity to emphasize the reasons for making this proposal, if enacted, inapplicable to the maritime industry.
Ships of the American fleet operate to and from United States ports in services and on trade routes throughout the world. These trade routes have been established by our Federal Government, which through its administrative agencies maintains continuous supervision and control as to the essentiality and service of the respective operations. As a result, there is, as a matter of fact, relatively little duplication of service between or among American-flag carriers. This, in part, accounts for some of the uniqueness of the maritime industry from a competitive point of view, as compared with other businesses or transportation media in this country. The sale of assets from one company to another tends, therefore, not to affect the competitive situation in any paricular service or on any specific trade route.
Further, we cannot overemphasize the fact that the American merchant marine is a vital segment of our national defense. If our fleet is to be healthy and well balanced, strong and efficient management organizations must exist. Mergers, consolidations, etc., have proven in the recent past, and will continue to prove in the future, to be an excellent device to create such management strength vital for our maritime survival in the face of low-cost foreign competition.
Moreover, it should be emphasized that any shipper has available to him not only the services of American-flag vessels but virtually identical service in foreign-flag ships as well. As a result, it would be impossible for American shipping companies which render only a part of the total service available in any trade to engage in practices aimed at restraint of trade or monopoly. Any such effort would automatically result in delivering his customer into the hands of a foreign competitor who is, of course, outside of the scope of the legislation presently under consideration.
One other vital fact must be borne in mind. All American overseas trades are not simultaneously or similarly affected by changes in general economic conditions. Certain trades may be faced with reduced cargo offerings while others are prospering. It takes some 2 to 4 years to build a vessel and a sum of $5 million or more is a very commonplace capital investment requirement. If an operator on a trade route that is expanding is to be enabled to take advantage of that condition without having to wait for the construction of a new ship, such can only be done by the purchase of a facility from another company under circumstances
which enable it or make it desirable for it to sell a ship. The legislation under consideration by your committee today would make it more difficult and subject any potential maritime transaction of this type to delays which are basically unjustified and, as pointed out herein, unnecessary. In that respect, the proposals of H. R. 264 and H. R. 2143 may deter business interests from providing immediate shipping services of a type and volume essential to the changing requirements of our international commerce and our national defense.
PRESENT MARITIME BOARD REGULATION
Broadly speaking, the American maritime industry can be divided between those ships which are subsidized and those which are not. Subsidy covers slightly more than 300 ships, or almost a third of our privately owned fleet. The owners of subsidized vessels are, by provision of the basic subsidy act—the Merchant Marine Act of 1936—under the closest and most exhaustive scrutiny of maritime agencies of the Department of Commerce. No transaction of the type characterized by H. R. 264 and H. R. 2143 could take place without prior investigation and approval of the maritime agency. Moreover, section 15 of the Shipping Act of 1916 provides that the Maritime Board shall be furnished with true and complete details of every agreement of a common carrier by water which may affect "controlling, regulating, preventing, or destroying competition.” The Maritime Board has the authority to disapprove, cancel, or modify any such agreement.
It is to be noted that both the Congress, in passing Public Law 899, 81st Congress, and the President, in approving it, indicated clearly the intent to retain in the regulatory agencies unrestricted control of operations of those subject to their authority. By specific wording in chapter 1184 enacted by the 81st Congress, it was made clear that such supervision would suffice in the protection of the public interest. The Senate committee in its report favoring that legislation (S. Rept. 1775, June 1950) wrote in language unequivocally stating the adequacy of present control of transactions.
It appears to us, therefore, that both under the Merchant Marine Act of 1936 and the Shipping Act of 1916, adequate notification requirements and safeguards concerning trade practices on the part of all American shipping companies, subsidized and nonsubsidized, are provided. In can fairly be said that under present regulation virtually no transactions of the type visualized under the proposed legislation could be undertaken without adequate and proper supervision of the Federal Maritime Board.
Since the maritime industry is a highly complicated one in which any evaluaton of practices must deal not only with the American aspects but also those of foreign competitors, the maritime agency of our Federal Government is the appropriate and most skilled body for any such evaluation.
It is noted that H. R. 264 does not contain the provision contained in H. R. 2143 which would exempt from the notification and waiting-period provisions any acquisition of stock or assets which, under any specific provision of law, requires the approval in advance of a commission or board or other agency of the United States. The exemption provision does provide, however, that even in such case any commission, board, or agency of the United States which is authorized by law to approve the acquisition by one corporation of the stock or assets of another corporation shall promptly notify the Attorney General or any application or request for such approval. We point out that the proposal concerning review by the Attorney General of any such transactions as referred to by us would be an unnecessary duplication of effort, and therefore suggest that a provision to this effect as well as that requiring a 60- or 90-day waiting period in the legislation under consideration is unnecessary and not in the public interest, in respect of transactions in the maritime area.
AMERICAN HOTEL ASSOCIATION,
New York, N. Y., March 25, 1957. Hon. EMANUEL CELLER, Chairman, House Judiciary Committee,
House Office Building, Washington, D. C. DEAR MB. CHAIRMAN: May we belatedly transmit to you herewith a brief statement for inclusion in the record, in connection with your hearings on H. R. 2143, before the House Judiciary Antitrust Subcommittee.
The American Hotel Association is opposed to the enactment of H. R. 264 and H. R. 2143. We feel that requiring advance notice of acquisitions of stock or assets would make it more difficult to sell hotel properties.
At the present time, there are numerous chains which operate a large number of small hotels throughout the United States. This method of operation enables many properties to show a profit, whereas individual operators of the same establishments might show a loss. Chains are the logical purchasers of many small hotels where individual owners are seeking to dispose of their properties.
Many chains have hotels with only 100 rooms or less. For example, 1 chain has nearly 200 hotels, more than 90 percent of which have less than 100 rooms. However, their total assets might easily exceed $10 million, and therefore they would be required to give advance notice to the Government every time they planned to purchase a new property. It should be readily understandable that such corporations would be less willing to purchase small hotel properties if this prolonged delay were imposed upon them. Respectfully,
ARTHUR J. PACKARD, Chairman, Governmental Affairs Committee.
Boston, Mass., March 4, 1957. Hon. EMANUEL CELLER, Committee on the Judiciary,
Old House Office Building, Washington, D. C. DEAR MR. CELLER: Thank you for your letter of February 26, 1957, reserving time for testimony on behalf of American Research and Development Corporation before the Antitrust Subcommittee on Wednesday, March 13, 1957, at 11 a. m. Since writing you on January 16, 1957, we have given consideration to the provisions of H. R. 264 and H. R. 2143 as well as S. 722 and S. 3424 as they would affect American Research & Development Corp., and we have come to the conclusion that it is no longer necessary that we take the time of your subcommittee with testimony. I do request, however, that this letter and the enclosed statement be filed with the record of your hearings and given such weight as your subcommittee considers appropriate in your consideration of the pertinent legislation before you.
The enclosed statement was made by Merrill Griswold, director and chairman of the executive committee of American Research & Development Corp. before Senator O'Mahoney's subcommittee on June 2, 1956. It states the difficult problem which the proposed legislation creates for the corporation and asks relief in the form of a rather specific exemption for venture capital investment companies receiving certification by the Securities and Exchange Commission pursuant to section 851 (e) of the Internal Revenue Code of 1954.
The original antimerger legislation would have handicapped severly venture capital investment companies like American Research & Development Corp. However, as the legislation has evolved it has reflected a growing realization on the part of the congressional committees and the administrative agencies involved that the wide reach of the legislation must be cut down if legitimate business is not to be unduly restricted and if the administrative agencies are not to be swamped with work.
Accordingly, while we believe the exemption originally sought is appropriate and in the public interest, we recognize that the broader general exemptions have reduced the burden on companies like American Research & Development Corp. We urge that these general exemptions based upon the size of the transactions and the participants involved be retained and broadened. In particular we urge that the asset and stock acquisition exemption be at least at the $1 million level and preferably $2 million. The exemption for stock acquisitions below 15 percent of the outstanding stock is also extremely important and should be retained.
Finally, we urge that the waiver powers of the administrative agency be broad and their exercise required both by the statute and the report of your subcommittee. Very truly yours,
Joux BARNARD. Jr.
STATEMENT OF MERRILL GRISWOLD, OF AMERICAN RESEARCH & DEVELOPMENT CORP.
My name is Merrill Griswold. I am a director and chairman of the executive committee of American Research & Development Corp., of Boston, Mass. I am here today to explain the effect upon our corporation of the proposed amendments to section 7 of the Clayton Act (S. 3424 and S. 3341).
American Research & Development Corp. is a special kind of investment company engaged in the furnishing of capital and managerial and technical advice to other corporations which are principally engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available.
We did not appear at the House Antitrust Subcommittee hearings on H. R. 9424 because we were completely unaware that the provisions of that legislation would have any effect, adverse or otherwise, upon American Research & Development Corp. We had supposed that the nature of our business and activities would keep us entirely outside the Clayton Act. While our business and activities are not repugnant to the Clayton Act, we find, however, that the technical provisions of these proposed amendments of the Clayton Act would impose upon us a serious disability. The proposal which is particularly troublesome to a company such as ours and which would make it particularly difficult for us to do business is the 90-day period of waiting after notice to the Federal Trade Commission and the Department of Justice.
In order that you may understand our peculiar difficulty with the waiting period, it is important that you understand our function. As the name suggests, American Research & Development Corp. is a venture-capital company which invests in new enterprises. We were organized in 1946 to meet the need for new sources of risk capital recognized by a group of prominent men in New England, including the late Karl T. Compton, who was then president of Massachusetts Institute of Technology ; Donald K. David, dean of the Harvard School of Business Administration; and Ralph E. Flanders, now Senator from Vermont, who was then president of the Federal Reserve Bank of Boston. At that time I was chairman of the board of trustees of Massachusetts Investors Trust, a large, open-end investment company. I cooperated with the above-mentioned gentlemen in the organization of this new company, and I helped out in arranging for various financial institutions, such as investment companies, insurance companies, foundations, and so forth, to contribute to its capital.
We do not invest in seasoned securities such as those listed on stock exchanges. Most of our investments are in small postwar companies engaged in activities involving modern technical developments in the fields of applied physics, electronics, nucleonics, chemistry, mechanics, thermomechanics, instrumentation, and specialized engineering techniques. These companies are at the forefront of modern science and its commercial application, and they provide new products and processes which help in the expansion of American industry into new fields. While many large companies are also engaged in the foregoing activities, the companies in which we invest are small, new, and, therefore, weak financially. It is in this area that our socially important function and our search for profitable investments coincide.
Our investments always involve sooner or later a purchase of stock. Section 7 of the Clayton Act provides in part that no corporation shall acquire the whole or any part of the stock of a corporation engaged in commerce where the effect of such acquisition or the use of such stock for voting or otherwise may be substantially to lessen competition or to tend to create a monopoly: Section 7 of the Clayton Act now provides and, as proposed to be amended, would still provide that the prohibitions of section 7 do not apply to purchases of stock solely for investment. But even in the case of a bona fide purchase for investment, the Clayton Act as proposed to be amended by S. 3424 would require notice and a 90-day waiting period unless the stock purchased or held is less than 5 percent of the outstanding stock of the company purchased or unless the "combined capital, surplus, and undivided profits of the acquiring and the acquired corporations” are $10 million or less.
Althougqh we do not consider that our corporation is yet large enough for the task it has set out to accoinplish, we have a capital, surplus, aud undivided profits of slightly over $7,500,000 on a book basis. American Research & Development Corp. has been quite successful in developing and financing a considerable number of small companies such as those described. While we have inevitably had some losses, most of our investments are turning out well, notwithstanding the fact that most of these small companies have to compete
with the biggest corporations in the United States. We hope to increase our capital moderately before long, and, if we do, we will undoubtedly exceed the $10 million limitation no matter how small the companies in which we invest.
Whenever we buy any stock we usually buy far more than 5 percent of the outstanding stock of a company. Often we are one of a very few sources of new money for a particular project-sometimes the only source for equity and long-term debt capital. Furthermore, if we distribute our funds over too many companies we cannot furnish the management assistance and advice which is one of our functions. We cannot limit our investments to loans and so avoid the requirements entirely because the risks inherent in these new ventures require an equity investment. It is obvious that our profits from our successes must outweigh the losses from the failures we must expect.
We have financed companies at their very inception and also at a later stage of their development. Our first investment often consists of a purchase of a substantial stock interest in a relatively new company which has been already formed by others but which needs more equity capital. In many cases our investigation and the discussion of terms will take 60 to 90 days. There seems to us to be no good purpose served by a requirement that we and the new company wait 90 days after our investigation has been completed. The need for the additional capital may be critical and a further delay could mean failure of the venture. In addition, the delay to which venture capital investment companies like ours would be subject would tend to drive the new companies to seek funds from individuals and partnerships which would not be subject to the proposed 90-day waiting period applicable to corporations. The formation of venture-capital investment companies would be discouraged by such a discrimination gainst the corporate form.
From the point of view of the company in which we have invested, it nearly always seems to be necessary to make additional investments. It frequently happens that these small companies experience setbacks, changes in plans, new opportunities, competitive pressures, or any of the numberless crises which beset even successful businesses. When those crises occur, as they inevitably do, additional funds will be required, and quickly. Under these circumstances, we may be the only source. Even if we are not the only source, we will at least be askeri to back up our confidence with cash in order to reassure other possible sources of additional funds. In most cases of this kind additional loans are neither possible for us nor desirable for the new venture. What is needed is more equity capital. A 90-day delay in investment of the additional funds could easily result in bankruptcy for that small company.
Even when the company is successful, our problem may not be over. It has often happened that a venture matures to the point where additional expansion can be financed by the general public. The investment bankers will usually prefer to eliminate any debt securities and preferred stock and offer common stock in a company having one class of stock and without a complicated capital structure. It is then necessary to exchange the existing senior securities for common stock in a recapitalization. When the terms have been arranged with the security holders and the investment bankers, time immediately becomes of the essence of the transaction. The banker will refuse to be committed over a long period during which anything can happen to the market. And yet we would have to wait 90 days in order to take common stock in exchange for our holdings so that the offering could go forward.
The examples cited are typical of our operation and make it clear that companies such as ours will be continually filing notices with the Federal Trade Commission and the Department of Justice and having to wait 90 days if this legislation passes in its present form. We believe that it is also clear that the investments which we make are "investments" as contemplated by the language of section 7 of the Clayton Act. We do not object to the aims of the legislation. If any of our portfolio companies merge or acquire stock or assets of another company, or if we sell a stock investment to another corporation, those transactions would be and should remain, subject to the prohibitions of section 7 including the notice and waiting period requirements.
We ask therefore that companies such as American Research & Development Corp. be exempted not from the Clayton Act or even from section 7 generally, but solely from the notice and waiting period requirement as it would apply to our acquisitions of stock. This can be done by a very simple amendment which adds the following language at the end of the first sentence of the third paragraph of section 7 as proposed by S. 3124 : "; nor to the acquisition of stock