Full opinion text
SHAW, District Judge. This is an action by the United States brought pursuant to the provisions of Section 15 of the Clayton Act (15 U.S. C.A. § 25) to restrain defendants Standard Oil Company (Jersey) and Potash Company of America (PCA) from consummating an agreement whereby Jersey would acquire all the stock and assets of PCA in alleged violation of Section 7 of the Clayton Act (15 U.S.C.A. § 18). Jersey is a New Jersey corporation maintaining its principal place of business in New York. PCA is a Colorado corporation with its principal place of business in Denver, Colorado. Jersey organized a Delaware corporation known as Potash Company of America, Inc. (Delaware) to function as a wholly owned subsidiary of Jersey. On September 16,1964 Jersey, PCA and Delaware became parties to an agreement captioned “AGREEMENT AND PLAN OF REORGANIZATION” whereby PCA would transfer all of its assets to Delaware in exchange for 850,000 shares of Jersey’s par value capital stock. Upon consummation of the agreement PCA as an independent, separate corporate entity would pass out of existence and its successor, Delaware, would conduct the business in which PCA had been engaged. Consummation of the agreement was enjoined pending determination on the merits of the government’s complaint alleging that the acquisition of PCA by Jersey in the form of a wholly owned subsidiary of Jersey would violate Section 7 of the Clayton Act. The pertinent provisions of the Act are quoted as follows: “No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of 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.” Both of the defendants are corporations engaged in interstate and foreign commerce and are subject to the jurisdiction of this Court. Production and sale of potash is the relevant line of commerce and the United States as a whole is the relevant geographical area or market within which the effects of the acquisition of PCA by Jersey upon competition must be measured. The parties have so stipulated and the stipulation is supported by the evidence. An association composed of potash producers called the American Potash Institute computes statistics of the trade in potash as a separate and distinct industry. The Bureau of Mines, Department of the Interior of the United States Government publishes a yearly pamphlet of information on the potash industry. Producers of potash in the United States compete with each other for the business of customers in all parts of this country. Approximately 95% of the potash produced is purchased by fertilizer companies for agricultural purposes. Potassium, a product of potash, is one of the three primary nutrients needed for optimum plant growth. The other nutrients are nitrogen and phosphate. Where soil in its natural state does not provide one or more of these nutrients in sufficient quantity, an application of some form of fertilizer is necessary to produce healthy crops. No one of these primary plant nutrients can be substituted for the other, and at present potash cannot be synthesized. Where soil requires these three nutrients, fertilizer companies combine them in a mixed fertilizer. The potassium content of potash is usually expressed by the trade either in terms of potassium oxide (K20) or muriate of potassium (KC1). The K20 content represents the potassium concentration. The commercial muriate of potash has a K20 equivalent of approximately 60%. Potash produced in Canada is and will be competitive with potash produced in this country. Increasing amounts of potash produced in Canada are being sold in the United States in competition with potash mined in this country. JERSEY As a corporate entity, Jersey functions primarily as an investment corporation. It invests the funds of its stockholders in subsidiary and affiliated corporations which are directly responsible for the operation of the various industrial enterprises which produce revenue for the parent company. Viewed in the light of its management, control and participation in the operating enterprises of its subsidiaries and affiliates which produce Jersey revenues, Jersey is, for all practical purposes, directly engaged in the business which each of them conduct. It is the general policy of Jersey, subject to a few exceptions, to hold 50% or more of the capital stock of operating industrial corporations in which it invests its funds. The conduct of the business of these corporations is closely supervised by Jersey.» Jersey holds more than 50% of the capital stock of over 200 foreign and domestic corporations engaged primarily in exploration, production, refining, transportation and sale of petroleum and derivative products including petrochemicals. Its capital expenditures for research, exploration and capital investment are world-wide, extending into more than 100 countries. In addition to its broad scale participation in the petroleum and petrochemical industries, it has reached and is reaching into other areas of industrial enterprise. During 1964 it arranged for the purchase of the business of American Cryogenics, Inc., a company engaged primarily in the manufacture and sale of liquified industrial gases and associated equipment used to create extremely low temperatures. Jersey has engaged in the development of real estate in Texas for light industry, residential and commercial use; it has acquired interests in the manufacture of textiles and film from polypropylene and in the production and sale of fertilizer products in foreign countries; and also anticipates entry into the field of production of sponge iron. In the administration of its investment policies, emphasis has been placed upon expansion of present corporate subsidiary and affiliate enterprises and continuing search for profitable diversification in new fields either by self-development or acquisition. In 1963 Jersey’s gross revenues totaled $11,931,463,000; its assets aggregated $11,996,691,000; and its net profits after taxes were $1,019,469,000. It was reputed in 1963 to be the largest industrial corporation in the United States and in the world in terms of assets, and the second largest in the world in terms of net profits. In 1963 Jersey’s total capital of $11.9 billion was employed: $5.6 billion in the United States; $2.7 billion in other Western Hemisphere countries; and $3.5 billion in the Eastern Hemisphere. The company’s 1963 net income of $1 billion was derived: $354 million from the United States; $310 million from other Western Hemisphere countries; and $355 million from the Eastern Hemisphere. Liberal capital expenditures over the years in furtherance of the policy of expansion and diversification of corporate activities have resulted in a significant growth of Jersey in terms of capital assets and.profits. Jersey’s capital assets in 1948 approximated $3.4 billion and its net profit after taxes for that year was approximately $365 million (compare with previous statement of assets and earnings for 1963). The coordinated functions of a Board of Directors, an Executive Committee and a Board Advisory Committee on investments (BAC) encompass the responsibility for top level decisions of Jersey in business management of existing enterprises and formulation of policy for future expansion and diversification. The Board of Directors approves the investment of funds of the stockholders, examines management and policy of affiliates, and makes available to affiliate companies the advice and guidance of Jersey staff groups organized for purposes of research and expert analysis of profitable business management and launching of profitable new enterprises. The members of the Board of Directors are executive officers of Jersey who work full time and meet once a week as a board. The Executive Committee of Jersey consists of the Chairman of the Board of Directors, the President of Jersey and six vice presidents. This committee meets daily and has the delegated authority to act on behalf of the Board of Directors between meetings of the board. This delegation of authority is subject to only “a few specially exempted functions, such as the declaration of dividends and a few things of that type.” The Executive Committee also reviews the budgets of affiliates. The actions taken by the Executive Committee are reported to the Board of Directors during each weekly meeting and, in general, are approved by the board. The board does, however, reserve the power to reject recommendations of the Executive Committee and to make changes in actions taken by the Executive Committee. BAC is a committee consisting of executive officers in the major staff groups of Jersey. The function of the BAC is to appraise and analyze proposals made to the Executive Committee or the Board of Directors of Jersey by affiliated companies or by staff departments with respect to proposed investments. All proposed projects of a staff group or affiliate above a certain dollar volume (approximately $5 million) are presented both to BAC and the Executive Committee. BAC conducts the more detailed review of such proposed investment proj- ects, makes recommendations to the Executive Committee and also reports directly to the Board of Directors. It maintains close association with the activities of the various departments and staff groups of Jersey. Jersey has numerous staff groups which assist in the discovery, analysis and appraisal of expansion opportunities available to affiliates and in profitable investment diversification by Jersey in new fields of industrial enterprise. Some of these exist in corporate form for various tax and legal reasons and others are in the form of Jersey departments. Projects are also initiated by affiliates and, if a project is recommended by an affiliate, it is reviewed by the appropriate staff group of Jersey. Final decision is made by the Board of Directors acting upon the expert analysis of a project developed by competent personnel in the staff groups and in the lower echelons of the affiliates. Where Jersey does not have an organization or a department staffed for the expert analysis of a proposed project which appears to be worth considering outside consultants are engaged. Basically, the Board of Directors fixes the guide lines for investment programs and objectives and relies, in making final decisions, on the information which is developed and flows to it from its advisory groups. Esso Chemical Company (Esso) is a corporate advisory and study organization wholly owned by Jersey. It does not operate any business. It came into being to expand Jersey’s chemical operations by adding to the product lines and to strengthen Jersey’s position in the agricultural markets. Its function and purpose is to advise Jersey with respect to interests and investments in the chemical fields which include potash and fertilizers. It has an agricultural chemical division. It functions as a staff organization in corporate form to initiate recommendations and to review any proposal for a chemical venture made by any affiliate company. This corporation was organized in 1963 by combining several other companies of the Jersey organization working on chemicals. Study and analysis of all chemical activities of a commercial nature presently in existence or proposed are now combined in Esso. Jersey Production Research Corporation is a corporate entity wholly owned by Jersey. It has the responsibility to conduct research for prospective oil deposits and to bring to the attention of Jersey any other mineral deposits, including potash and phosphate, which are discovered during the course of the discharge of its primary function of exploration for oil. Esso Research and Engineering Company has been described as the “principal research arm of the Jersey family.” It not only includes research on a broad scale in connection with petroleum, petroleum processes and petroleum production, but also conducts research in other fields. It covers a broad field of research on behalf of Jersey in contrast to the specialized field in which Jersey Production Research Corporation operates. Esso Exploration Company is another fact finding corporation whose responsibility to Jersey is to explore the possibility of oil deposits in various parts of the world where Jersey does not have an existing affiliate company operating. This corporation is managed by a staff department of Jersey known as the Producing Coordination Department. The five regions of the world to which the investment interests of Jersey extend are the United States, Canada, Latin America, Europe, Africa and the Far East. Jersey has on its Board of Directors a contact director for each of the various production classifications such as chemicals, refining, etc. This director maintains contact on a world-wide basis for the particular producing function for which he has responsibility, and he works together with a regional contact director. For example, Mr. H. W. Fisher, Vice President and member of the Board of Directors of Jersey, is the contact director in the chemical field. Mr. J. F. White is the regional contact director for Canadian operations. According to the testimony of Mr. Rathbone, Chairman of the Board of Directors of Jersey, these two men would function together in bringing any matter of proposed investment in the chemical field to the attention of the BAC, the Executive Committee of Jersey and, finally, to the Board of Directors of Jersey in the manner and subject to established policy with respect to corporate capital investment program processing. The principal industrial producing affiliates of Jersey identified in ranking order of significance for furtherance of Jersey’s interest in potash and fertilizer industries are: (1) Imperial Oil, Limited (Imperial) is the largest integrated oil company in Canada. In 1963 its revenues exceeded $1 billion. Its market extends from coast to coast in Canada. In addition to its sale and distribution of petroleum products, it has also, among other things, engaged in the sale and distribution of mixed fertilizers. These mixed fertilizers are obtained by purchase from a manufacturer. Seventy percent of Imperial’s stock is owned by Jersey. The remaining 30% of stock interest is widely held by the public. Jersey votes its shares of stock in Imperial every year for the election of Imperial directors. Proposed items in excess of $300,000 in the fiscal capital budgets of Imperial are referred to Jersey for comment. (2) Humble Oil and Refining Company (Humble), a petroleum company operating in the United States, is a wholly owned subsidiary of Jersey. (3) Enjay Chemical Company (Enjay) is a wholly owned subsidiary of Humble engaged in the United States in the operation of a petrochemical business. (4) International Petroleum Company (International) is a wholly owned subsidiary of Jersey. It is an oil producing and marketing corporation operating in the Caribbean area. International and Esso collaborated on the studies which led to the entry by Jersey into the production and sale of mixed fertilizers in the Caribbean area. A more detailed discussion of Jersey’s interest in the mixed fertilizer business will follow under another caption. The evidence leaves no doubt as to the fact that Jersey has the available expertise to discover and competently evaluate the potential of profit in new fields of capital investment; that it has embarked upon and emphasized a policy of continued economic growth consistent with maintenance of current percentage of profit return; and that it has the capital resources for acquisition of a profitable enterprise by purchase, or for the undertaking of large and long-term capital financing of a self-developed business deemed likely to enhance the ultimate overall profit return to its stockholders. At the present time neither Jersey nor any affiliated company is engaged in the extraction of minerals from the earth (other than oil) or the processing thereof. Hence, the mining, processing, and marketing of potash would be a new venture enterprise for Jersey which Jersey contends would not be attractive to it except by acquisition of a company like PCA which has acquired experience and developed expertise in the field of mining, processing, and marketing of potash. Jersey denies that it has given serious consideration at the top echelon of management to a self-developed or “grass root” project in the potash industry. PCA PCA was organized during 1931. It started to produce potash in 1934 and has been and still is engaged almost solely in the business of exploring for, mining, processing and selling potash. Among the nine companies producing potash in the United States it is the largest producer. It ranks second in North American production. In terms of total current revenues and net profit after taxes from the sale of potash it ranks among the most successful companies in the potash industry occupying an enviable position in that field. PCA has enjoyed continuous and profitable growth over the years and during the fiscal year ending June 30, 1964 its earnings and total assets were reported at record levels. Sales totaled $23,279,153 and net profits after taxes amounted to $3,171,609. It had total assets in the amount of $54,330,667 and a net worth of $40,224,794. Mining and processing of potash by PCA has been conducted in New Mexico in what has been described as the Carlsbad area. Facilities there, owned and operated by PCA, have potential production capacity of approximately 1,000,000 tons of KC1 annually or approximately 600,000 tons K20. It has been producing and selling almost at capacity and has enjoyed a ready market for all the potash that it had potential capacity to produce. From the evidence this also seems to be true as to its competitors. During the year 1950, PCA began to explore for potash in Saskatchewan, Canada. An ore body was delineated in the Saskatoon area in 1953 and operations were begun to construct a mine shaft and a surface plant. Work on this was completed during 1958 and limited mining operations were begun and continued until November 1959 when damage due to water seepage into the mine shaft necessitated extensive repairs and a shutdown. It was further found during the short period of operation that the existing concentrating facilities were inadequate to remove insolubles from the ore. Further work was done to secure the mine shaft and to modify the surface installation. During trial it was anticipated that PCA would be able to resume its production at Saskatchewan during March 1965. PCA’s undertaking to mine potash in Canada was a pioneering operation. A shaft was sunk to a greater depth than had ever been previously undertaken and unforeseeable problems of water seepage were encountered. There is evidence that these problems which PCA encountered with the mine shaft would not recur with PCA or others because of knowledge gained by PCA’s experience. The total capital cost of PCA’s Saskatchewan facilities amounted to approximately $43,500,000. The plant has a present capacity of about 600,000 tons of muriate of potash annually and a potential for increased production when and if a larger concentration facility is built. It is anticipated that production costs will be less in Canada than in New Mexico and that the ore body, on the basis of prospective rate of production, will, on a conservative forecast, last at least a hundred years. PCA has been one of the lowest cost producers in Carlsbad and it is anticipated with the operation of its Canadian mine that it will achieve a production cost basis comparable to that of the lowest cost producer in the world. PCA has large and rich potash ore reserves in both the United States and Canada and a time advantage of at least five years in conventional shaft mining in Saskatchewan over any other competitor except International Minerals and Chemical Company, placing it in an excellent position to supply all of Jersey’s present and future potash requirements. The facts as just mentioned were, among others, persuasive to Jersey in reaching its decision that acquisition of PCA was economically attractive. The price offered by Jersey (850,000 shares of Jersey par value capital stock, the equivalent of $73,525,000) amounts to a premium of about 30% based on 1.26 million shares of PCA stock outstanding at a market value of approximately $45 per share. In addition to this Jersey was to assume long term debts of PCA in the amount of $15,000,000. There is no dispute about the fact that PCA is a strong, active competitor in the production and sale of potash in the United States. During the year ending June 30, 1963 PCA had domestic sales of 760,419 tons of KC1 and foreign sales of 134,462 tons. In the year ending June 30, 1964 it had domestic sales of 807,540 tons and foreign sales of 191,630 tons. Its domestic sales for the year 1964 represented 17% of total sales in the potash industry in the United States. This is based upon total United States sales of potash including imports. At time of trial it was estimated that its facilities in Carlsbad, New Mexico had been producing approximately 18% of total United States potash producing capacity. A distinction is made between potential and actual production. It should be noted, however, at this juncture, in connection with resources and economic strength that while PCA is the largest producer of potash in the United States and is projected to be the second largest in North America, nevertheless, it is a small competitor in the potash industry when compared in terms of total net worth, revenues, and net profit after taxes. It is only in the potash industry in which PCA is almost exclusively engaged that it holds a predominant position. If Jersey acquires PCA, there would be no company presently engaged in the potash industry which would be substantially comparable to Jersey in terms of total assets, net worth, revenues, and net profit after taxes. THE POTASH INDUSTRY Potash is generally found in bedded deposits of marine evaporites or naturally occurring brines. It is extracted from the earth by mining and is processed for commercial use in a surface concentration plant. The principal source of supply in the United States has been from the Carlsbad area of New Mexico where the resources are being rapidly depleted. It is estimated that the resources of potash there will be exhausted in less than 20 years. In recent years it has been discovered that rich and virtually untapped potash beds are located in the Saskatchewan province of Canada, and the attention of the potash industry is being focused upon production there as the probable principal source of supply for the future needs of the markets in North America and abroad. The quality and the thickness of the ore beds in Saskatchewan, so far as is presently known, are much better than those in Carlsbad. However, the best ore beds known to exist at Saskatchewan are located at a greater depth from the surface of the earth than those in New Mexico, thus creating more serious engineering problems in mining. The evidence does not indicate, however, that there would be an ultimate competitive disadvantage. There are two methods of mining the ore: conventional shaft mining and solution mining. Presently almost all of the potash produced in North America is recovered from underground beds by “room and pillar” conventional shaft mining. Generally a shaft with an inside diameter of approximately 16 to 18 feet is sunk to the level of the underground horizontal potash bed. The underground workings are extended from the shaft, usually in several directions. Not all of the ore from the beds can be extracted because a certain quantity must be left to support the overlying geological structures. The ore is brought to the surface by mechanical means, crushed, purified and concentrated to the point where it contains approximately 60% K2O. In connection with the depth at which potash can be mined by conventional shaft mining, it was stipulated at the time of trial that “no producer is now mining potash deposits at a depth of more than 3350 feet below the earth’s surface by the shaft method. Potash Company of America plans to mine potash in Saskatchewan by the shaft method at depths up to 3465 feet. It is not now known whether it is possible to mine potash found at greater depths by the shaft method.” There are two methods of solution mining described as selective and non-selective. It was stipulated by the parties that “in a selective solution mining process a hot brine saturated with respect to sodium chloride but undersaturated with respect to potassium chloride is circulated underground and is intended to remove the potassium chloride from the underground mineral deposits. In a non-selective solution process a hot liquid undersaturated with respect to both sodium chloride and potassium chloride is circulated underground to extract both these chemicals.” Solution mining can be conducted at greater depths than shaft mining. Because the extensive rich deposits of potash in Saskatchewan are located at greater depths from the surface of the earth than may be feasible to mine by the shaft method, it is likely, as Saskatchewan comes to be the principal source of North American supply, that solution mining will of necessity be utilized to a considerable extent. The areas within which shaft mining can be successfully undertaken, so far as is presently known, are limited. The best ore beds seem from the evidence to be located at depths greater than- 3500 feet from the surface of the earth. It has been determined that solution mining is technically feasible and that when some further technological problems are solved, the only difference between shaft mining and solution mining will be a matter of production costs. It has been reported that large scale production by the shaft method is more economical, but on small scale production, avoidance of the initial expense of construction of the shaft mine would off-set the differential in production costs. Another favorable factor is the short period of time within which a solution mine can start to produce. The feasibility of solution mining and a comparison of costs of shaft mining is set forth in a memorandum to W. E. Wallis of the Producing Coordination Department of Jersey by T. E. Gillingham a consulting mining engineer engaged by Jersey on a consultant basis. No doubt, in view of the cost differential on large scale production, solution mining will not be undertaken to a great extent until some further technological problems have been solved bringing cost production to a comparable basis with shaft mining, or until the demand cannot be satisfied by resources available for shaft mining. However, one company, Kalium Chemicals, Ltd., has entered into commercial production using a solution mining technique at its facilities in Saskatchewan. The first Kalium shipment of potash was made September 29, 1964. It should also be noted that other companies, including Imperial Oil, have experimented with solution mining and have not entirely rejected ultimate feasibility. Based on past experience, it seems clear that at least four to five years is required to construct a shaft mine and a surface concentration plant. Preliminary to this is the exploratory work of locating the ore reserves by drilling test holes. Because of the amount of initial capital investment and the period of time before production can begin, entry into the potash industry by shaft mining is limited to companies with substantial capital resources. In lesser degree the same is true of solution mining. The companies now engaged in North American production in this country and Canada, with date of entry into the industry and with current production or imminent potential production, are shown on the following chart: PRODUCTION DATE OF (TONS KC1 OR COMPANY ENTRY LOCATION EQUIVALENT) American Potash & 1916 California 350,000 Chemical Corp. U. S. Borax & 1931 New Mexico 867,000 Chemical Co. Potash Co. of America 1934 New Mexico 1,040,000 1965 Saskatchewan 600,000 Bonneville, Ltd. 1938 Utah 100,000 International Minerals 1940 New Mexico 665,000 & Chemical Corp. 1963 Saskatchewan 1,600,000 Duval Corp. 1951 New Mexico 551,000 Southwest Potash Corp. 1952 New Mexico 1,000,000 National Potash Co. 1957 New Mexico 450,000 Kalium Chemicals, Inc. 1964 Saskatchewan 650,000 Texas Gulf Sulphur 1965 Utah 550,000 It will be noted from the foregoing that the production of potash in North America is concentrated in ten companies and that of these only two, PCA and International Minerals and Chemicals Corp., have production capacity in excess of 1,000,000 tons of KC1 annually. Parenthetically, it should be noted that upon completion of its expansion program at Carlsbad, Southwest Potash will probably come within that class. It may also be noted that this number of companies was developed slowly over the period from 1916 to 1965. Production of potash is an industry in which present concentration is substantial. There are, however, other potential entrants into the field. Kermac Potash Company which is owned 50% by Kerr-McGee is engaged in the construction of a potash mine and concentration plant in the Carlsbad area and its project was expected to begin commercial operations in 1965 with a designed capacity of 1,500 tons of KC1 per day. Kerr-McGee also holds potash exploration permits in Saskatchewan. Alwinsal, a French potash company, began construction of a shaft at Saskatchewan during 1964 and expects to be in production during the year 1969 with forecast of annual capacity of from 550,000 to approximately 1,000,000 tons of KC1. United States Borax and Chemical Co., Homestake Mining Company and Swift and Co. are planning a joint venture to construct a potash mine and plant in Saskatchewan with capacity of 1,500,-000 tons of KCI annually. The evidence indicates that this project will involve a total investment of about $66 million over a period of four or five years. On January 25, 1965 Consolidated Mining and Smelting Co. of Canada, Ltd. announced plans to develop its potash producing property in Canada with planned production at the rate of 1,000,000 tons of KCI annually. Forecast of capital investment is $65 million and the project is scheduled to begin production in 1969 or 1970. Noranda Mines, Ltd. announced plans to proceed with a mining project at Saskatchewan on February 22, 1965. The planned productive capacity is 1,200,000 tons of KCI per year with production expected to commence in 1969. According to the American Potash Institute, shipments of potash for agricultural purposes for use in the continental United States totalled 2,839,965 tons K20 (4,733,275 tons KCI) in the year ending June 1964 compared to 2,535,344 tons K20 (4,225,573 tons KCI) in the year ending June 1963 and 2,236,405 tons K20 (3,727,342 tons KCI) in the year ending June 1962. Of these totals 260,676 tons K20 were imported in 1964 as compared to 276,525 tons K20 in 1963 and 238,803 tons K20 in 1962. The forecast is a continuously increasing demand for potash in the United States as well as abroad. Growth in population with accelerating and urgent need for more agricultural food products, particularly in underdeveloped countries, plus emphasis in agricultural studies and recommendations on the value of good fertilizers for optimum plant growth .account for the forecast of annually increasing demand for potash, nitrogen and phosphate both in the United States and abroad. According to the U. S. Bureau of Mines Minerals Yearbook for 1963 on Potash, world production of potash increased from 9,400,000 tons K20 (about 15,600,-000 tons KCI) in 1959 to about 12,000,-000 tons K20 (about 20,000,000 tons KCI) in 1963. Production in the United States during the same period increased from about 2,383,000 tons K20 (about 3.971.000 tons KCI) to about 2,865.000 tons K20 (about 4,775,000 tons KCI). Continued growth in the United States demand ranging from 5% to 10% per annum is expected over the next several years. Demand in the rest of North America and Central America, South America, Oceania and the non-communist Far East, considered collectively, is projected to be approximately 1,710,000 short tons (K20) in 1965 and to grow at a rate in the range of 9% to 10% per annum over the next several years; demand in Africa and the Near East is projected to be approximately 180,000 tons (K20) in 1965 and to grow at a rate in the range of 12% to 13% per annum over the next several years; and demand in Western Europe is projected to be approximately 4.720.000 short tons (K20) in 1965 and to grow at a rate in the range of 4% to 5% per annum over the next several years. It has been estimated by defendants that the potash requirement of Jersey’s overseas fertilizer plants for 1965 will be 87.000 tons K20. The projected potash requirements of Jersey’s present and planned overseas fertilizer plants will amount to 168,000 tons K20 in 1971. In addition to these estimated requirements, Jersey includes an additional 102,000 tons K20 for possible potash requirements of overseas fertilizer plants which may be planned for operation in the future. Considered in terms of the world-wide market, there is presently a shortage of potash for export from North American sources. United States producers sell potash for consumption, not only in the United States, but also in the rest of the Therefore, the market in which the potash producers must compete is measured by consumption in the United, States, and the rest of the Free V^orld. It is estimated that currently planned increases in North American production by present producers and announced new North American production by companies not now engaged in the production of potash in North America will, by 1970, result in North American potash producing capacity of between 15 and 16 million tons KC1. According to the American Potash Institute, North American potash consumption in 1970 will be between approximately 7 and 10 million tons KC1. Based on these estimates, which in the light of all of the evidence the Court considers conservative, North American potash production (capacity to produce) will, by 1970, exceed North American potash consumption by between 5 and 9 million tons of KC1. But it seems on the basis of the evidence available and taking all estimates of productive capacity at face value, that after 1971 demand for potash will catch up with supply. In a memorandum dated February 24, 1964 by D. A. Benfield, Imperial Chemical Products Department, (signed by L. R. Muir of that department) addressed to Dr. W. W. Stewart, Manager, Development Division, Chemical Products Department of Imperial, world potash supply and demand trends were re-evaluated and summarized as follows: “The potash industry is buoyant and will show healthy growth. “The over capacity situation which presently exists will be continuously reduced as demand catches up with supply. “It is very important that Imperial establish its operation at an early date (in production by the first of 1966) to secure our competitive position in the market place before other new capacity is built to cope with anticipated demand beyond 1970. The steady demand can be expected to minimize the effect of over-supply on price, but pressure on higher cost producers will develop. “It is imperative that Imperial have a low cost mining and recovery process comparable with that of the strongest competition.” It is quite likely that North American potash companies will supply a substantial part of the annually increasing foreign demand. World supply of potash, on a conservative estimate, may exceed world demand by 1,020,000 tons K20 by 1971, but whether the continually increasing demand both in the United States and abroad will ultimately exceed available supply is an open question. The positive fact is that demand will continually increase. Whether there will be any developments in the next six or seven years resulting in increased productive capacity over and beyond what is presently projected is purely conjectural. There is no evidence to support an inference that such might occur. There is, however, evidence that previous forecasts of the extent to which demand would increase have been highly inaccurate. There is also evidence that at present potash is in “tight supply” and that this circumstance of the market has kept prices up. Mr. Dean Gidney, Vice President of PCA in charge of sales, testified: “Question: Has the potash market expanded beyond your expectations at the time that you were making prognoses in 1960 or 1961 or 1962? Answer: It most definitely has. Question: What form has that taken or what magnitude has that been ? Answer: It has expanded much more rapidly — consumption has expanded much more rapidly than I figured. I would say it almost doubled the rate that I had anticipated. Question: This is since 1962 ? Answer: 1961, 1962, yes, sir. Question: Have the prices held up? Answer: Yes, sir. Question: What has been the price range since you have been with Potash Company of America ? Answer: The low, I believe, was thirty cents a unit. Question: When was that ? Answer: That started in 1957-1958. It carried over into 1958-1959 and perhaps in 1959-1960 it was slightly higher. The comparable price now is 36 cents a unit. This is comparing the low price during the lowest price period of the lowest price product. Question: For each period ? Answer: Yes, sir. Question: What have been the factors which were keeping these prices up? Answer: The primary factor is that potash is in tight supply.” Despite the fact that potash has been in “tight supply” in the United States market, competition has become moderately virile in recent years, and PCA and its few large competitors have been the vital motivating factors in maintaining the competition. Commitments of the potash producers to the fertilizer companies for the sale of potash are usually for a term of one year, and price lists are revised annually. During seven of the years preceding 1965 it became necessary to revise initially published price lists in order to meet competition. Prior to 1957, prices were carried forward from year to year indicating that there may have been little, if any, competition. Mr. Dean Gidney testified that PCA prepares a price schedule for each twelve-month period. Referring to this and to the price list published by other potash producers, he stated in connection with the development of competition : “A. In general, the final price lists published by each potash producer for a contract year are the same in price. The prices quoted by the competitors are finally the same. Q. What do you mean by saying “finally the same”? A. In many years it has been necessary for one or more companies to issue revised price lists to meet competition created by a lower price list as put out by a competitor. ‘Final’ means the final revised price list for each company. Q. Taking some period of time — well, take for example the last ten years, do you know in how many of those years companies issued revised price lists after having first issued an initial price list? A. In seven of the last ten years it was necessary for some companies to issue revised price lists. I might qualify that by saying that at one period the prices were carried forward from one year to the next year, so that is one of the three years in which there were no revisions. Q. Taking Defendant’s Exhibit 51, selecting some year there as an example, can you give us an example of the year in which revised price lists were issued by a company ? A. I might choose this most recent year, sir, the year 1964-65 in which we are presently engaged. The first price list issued by any potash producer this year was issued by International Minerals & Chemical Corporation, which price list represented an increase over the prices quoted last year. Following IMCC’s price list U. S. Borax Company issued a price list very similar to that of IMCC. Subsequent to that Potash Company of America issued a price list which was lower than the price list issued by International Minerals in some respects. Very shortly thereafter Southwest Potash Company issued a price list which was still lower in some respects than that issued by Potash Company of America. Following Southwest’s price list it was necessary for Potash Company of America to issue a revised price list meeting their competition. International Minerals & Chemical did the same. The other producers, Duval, Texas Gulf Sulphur, Kalium and American Potash Chemical Company issued similar price lists.” Profits in the industry are high and the margin of competition is not great. In this structure of the market a relatively small anti-competitive effect may substantially lessen competition. On the basis of presently projected production and demand, it is reasonable to infer that a highly competitive market may not come into existence until at least 1969. The continuance of it for more than a few years thereafter would depend upon increased production not presently foreseeable. JERSEY’S INTEREST IN POTASH The interest of Jersey in potash developed after it became involved in investment in the fertilizer business. Investment in that business was a logical step in diversification. Other oil companies including Cities Service, Continental Oil, Socony-Mobile and Gulf Oil have also entered the fertilizer industry since World War II. The logical motivating factor for expansion into the fertilizer industry is that reformed gas, a product of the oil industry, is a source of ammonia. Ammonia, in turn, is a source of nitrogen, one of the three primary plant nutrients used in fertilizers. As early as 1956 Jersey became interested in the production of nitrogen in Peru and during 1959 it decided to invest in the construction of an ammonia plant in Cartagena, Colombia. As of the end of 1964, affiliates of Jersey owned in whole or in part fertilizer plants producing mixed fertilizers located in Aruba, Colombia, Costa Rica, El Salvador, Jamaica, Puerto Rico, and St. Vincent. Furthermore, affiliates of Jersey are constructing or have definite plans to construct additional plants for the production of mixed fertilizers in St. Lucia and Jamaica. There are also plans for the construction of plants in Lebanon and the Philippines and in other locations. A subsidiary of Jersey owns in part a fertilizer plant in Spain for the production of ammonia. Jersey is also constructing or has definite plans to construct other plants which are not mixed fertilizer plants. A distinction is made between plants which are producing or which will produce mixed fertilizers and those which are producing or which will produce nitrogen and related nitrogen fertilizer products. The distinction is made because plants which do not produce mixed fertilizers have no need for potash unless it is decided to expand operations of such plants into the manufacture of mixed fertilizers. It is a likely inference from the evidence that in most instances wherever Jersey invests in the fertilizer business, it will ultimately produce mixed fertilizers. The total investment of Jersey in fertilizer plants as of January 15, 1965 was approximately $90,300,000. Further investments under consideration as of February 3, 1965 would exceed $132,-000,000 -not including a proposed mixed fertilizer plant in Australia. ($95,000,-000 in the Netherlands, Spain and El Salvador and $37,000,000 in Malaya, St. Lucia, Jamaica, West Pakistan, Lebanon and the Philippines.) Jersey purchases potash for its mixed fertilizer plants on annual contracts the same as other fertilizer companies. There was a substantial increase in tonnage purchased during the first nine months of 1964 as compared with the year 1963. The annual tonnage required will continually increase to meet the future needs of Jersey’s expanding fertilizer business. The fertilizer business is profitable and future expansion by Jersey can be anticipated wherever an advantageous market and location presents itself. During 1963 and 1964 Jersey’s purchases of potash were spread among PCA, Southwest Potash Corporation, Potash Export Association and International Metals and Minerals. Prices are uniform and the evidence supports a reasonable inference that the limited quantity of potash which Jersey acquires annually from each supplier is attributable to the fact that no single one can supply all of Jersey’s needs consistently with its other customer commitments. It has been previously noted that Jersey estimated its potash requirements for the year 1965 to be 87,000 tons K2O. It projected its requirements to the year 1961 estimating a definite quantity of 168,000 tons K2O and a possible additional amount of 102,000 tons to meet requirements of new fertilizer plants not presently planned. This, in the potash industry, is a short-range projection made in connection with the desirability of acquisition of PCA. In the same document prepared by Esso Chemicals for review by the BAC for this acquisition it was stated: “Short-Range Picture * * * [Ajccording to the Potash Export Institute, there is now an actual shortage of potash for export from North American sources, and even the domestic demand is being barely balances {sic] by full production at Carlsbad and by increasing imports from IMC’s Canadian mine. Indeed, potash prices were increased on July 1st by an average of 7-8%. “What is the reason for the present tightness of supply and demand? “In the first place, the new plants did not come onstream as predicted; in the second place, there is reason to think that the growth rate of potash consumption in this decade may be higher than anticipated, though perhaps not as high as it was in the previous decade.” ****** “It is significant that every large potash project in North America in the past decade has been delayed for one reason or another, and that every temporary surplus of production has been sold within a year. It is also significant that 4.5 years is about the minimum time required to bring a new Canadian conventional mine onstream, so that it is unlikely that there will be any Canadian conventional mine, other than IMC and PCA, in operation before 1969, at the earliest.” It was also noted in the same Esso report to the BAC dated August 14, 1964: “General Long-Range Picture A gradually increasing need for fertilizers is undeniable: the inexorable growth of world population will create in 35 years a need for twice today’s food production — assuming that people will be fed at the minimum recommended nutritional level. Unless vast new acreages of Canadian and Siberian podsols and tropical lateritic soils of very low fertility are brought into cultivation — a rather unlikely development — the new food requirements must come from present pastures and cultivated lands plus the rather limited acreages that can be brought economically under irrigation. Much gain can be expected from improved plant strains and pest control, but the great burden of increased food production must fall upon balanced fertilizers. ■ The trend is already evident in the , U. S., where, as land use becomes more selective, the yields per acre are being doubled by sophisticated plant breeding and fertilizing with nitrogen and mineral fertilizers. Inevitably, lands now lying fallow because of their submarginal fertility will come back into cultivation — but only with heavy applications of fertilizer. Even at present growth rates, fertilizer requirements will double in 25 years. While much the same picture can be hypothecated for several raw materials, such as copper or lead, for example, the fertilizer raw materials seem almost uniquely free of the threat of substitution and of dependence upon industrial growth.” So far as the evidence discloses, the projected rates of consumption of potash by Jersey are based upon requirements of overseas mixed fertilizer plants. Consideration does not seem to have been given to entry into the mixed fertilizer business in the United States. It was ; contended at trial on behalf of Jersey , that it was not particularly interested i in getting into the mixed fertilizer mar'ket in the United States because of the ¡competition. But it must be noted that 'since 1962 Jersey has studied the possiJ bility of acquiring United States fertilizer companies. It bid $75 million to acquire the assets of Agricultural Chemicals Company, the second largest mixed fertilizer company in the United States. The offer was refused. It was prepared to pay up to $95 million for the Virginia-Carolina Chemical Company, another United States mixed fertilizer company, but no agreement could be reached. Other acquisition possibilities in this field which were studied by Jersey were International Minerals and Chemicals Corporation, Smith-Douglass, RoysterGuano, Spencer Chemical Company, and Texas Gulf Sulphur Company. In the light of this interest shown in the mixed fertilizer industry in the United States, the probability that Jersey will ultimately enter cannot be ruled out. The question is only one of when the advantageous opportunity for profit will be presented. The net profit return from Jersey’s mixed fertilizer business is high and the evidence indicates that the business will continue to be profitable to and beyond the year 1971. Accordingly, it is reasonable to infer that expansion will continue beyond that date with construction of new fertilizer plants. The history of the development of Jersey enterprises supports the conclusion that so long as the profit rate is attractive, further investment of capital will be made to increase production. It should also be noted that Jersey’s interest in acquiring its own source of raw materials for its fertilizer business is in keeping with a recent trend toward backward integration in the fertilizer industry. At present there is only one company in the mixed fertilizer business, International Minerals and Chemicals Corporation, which has its own source of supply of nitrogen, phosphate and potash. The Consolidated Mining and Smelting Company of Canada, Ltd., also in the mixed fertilizer business and marketing a substantial part of its mixed fertilizer in the United States through a wholly owned subsidiary, Comineo Products, has both phosphate and nitrogen and intends to mine for potash. Other mixed fertilizer companies have become self-sufficient in two of the three plant nutrients primarily by acquisition. The testimony of Mr. Hall, President of PCA, as to this recent development in the mixed fertilizer business is quoted as follows: “Question: Is there anybody in the industry that has their own nitrogen, phosphate and potash and is a mixed fertilizer producer and seller as well? Answer: International Minerals is in the mixed fertilizer business. They have nitrogen and phosphate and potash. Question: Is there anybody else? Answer: No. Question: Are there mixed fertilizer companies that would be basic in two of these three nutrients that you mentioned? Answer: Yes. Question: Is this a more recent development in the industry? Answer: Yes, I would say it is. It has been so in the past four or five years. Question: Is the converse also true, that firms that are basic in these nutrients go into mixed fertilizers? Answer: Not particularly. I would say generally not. There has been some, if you want to call it backward integration. Question: What do you mean? Answer: They are in the nitrogen business, then might get into the fertilizer business. Is that what you mean ? Question: Yes. Answer: Yes. Question: I take it from your answer, most of the integration has been the other way, fertilizer firms becoming basic ? Answer: Through acquisition, primarily. Question: Is there also a trend toward firms becoming basic in more than one of these primary nutrients ? Answer: They are attempting to, yes.” The desirability of backward integration by Jersey was suggested by Siro Vazquez, head of Jersey’s Producing Coordination Department in a memorandum to Mr. H. G. Mangelsdorf, President of Esso Chemical dated August 11, 1964. In that memorandum it was stated: “Three points have bearing on this matter of potash minerals production. First, our studies indicate that the producing function tends to be the most profitable portion of the fertilizer business, which suggests the desirability of integrating backward to raw materials production. Further, owing to the large capital costs necessary to get into potash production in Canada, the DCF [discounted cash flow] is greatly improved by achieving large and maximum production very early in the life of the project. Thirdly, it is possible to establish consortiums of joint producing companies which will permit even a relatively small consumer to reap the advantages of large production. The terms under which these consortiums operate can be flexible and indeed might be written in such a manner as to protect Jersey should it ever find it desirable to increase its production enormously.” Jersey’s intention to acquire, if possible, its own source of raw materials for its fertilizer business is further corroborated by the interest shown in acquisition of phosphate. It considered phosphate deposits in Peru, Jordan, Africa and the Spanish Sahara. In the United States it examined phosphate possibilities in North Carolina, South Carolina and Florida. It has option rights on phosphate bearing areas in Utah which are presently held by Enjay Chemical Company, a wholly owned subsidiary of Humble. A presentation to the BAC by Esso Chemical Company, Inc. on the desirability of the acquisition of PCA dated August 18, 1964 recites among other things: “If an attractive avenue can be found, Jersey desires to enter into production of phosphate and potash raw materials to supplement nitrogen production.” R. L. Brown, Jr., Secretary of the BAC, commenting on BAC approval of acquisition of PCA wrote on August 17, 1964: “BAG noted that Denver’s* highly mechanized mine in Carlsbad produces low cost ore of high quality and that the associated flotation plant is one of the best in the world. Nevertheless, this mine’s economic life is estimated at only 17 years at current production rates and higher production rates and/or increased competition from lower cost Canadian ore could shorten this life. “BAC agreed that one of Denver’s most attractive features is the existence of the Saskatoon shaft. Experience has shown that at least 4 to 5 years are required to complete such a shaft thus guaranteeing a delay of that magnitude before any new Canadian production could come on-stream. In reality, the time period might even be longer since delay in bringing new facilities into production has been typical of this Industry in the past. BAC concluded that the best Canadian alternative to acquiring an existing Saskatchewan potash mine would be to start a grass roots potash operation there, either singly or as a member of a consortium. Such a course of action would necessitate accepting a 5-year delay before a shaft could be completed and production started." (Emphasis supplied) (*Denver is the code name for PCA) The foregoing provides a background of the nature and extent of Jersey’s interest in potash leading up to the question of whether such interest was sufficiently compelling to conclude that in the absence of acquisition of PCA, Jersey would probably enter the potash industry on a “grass roots” basis. MANIFESTATIONS OF JERSEY’S INTEREST IN ENTERING THE POTASH INDUSTRY ON A “GRASS ROOTS” BASIS IF OPPORTUNITY FOR ADVANTAGEOUS ACQUISITION DID NOT PRESENT ITSELF Documentary evidence found in the files of Jersey departments and affiliates from at least 1959 (the date of interest shown by Humble to which reference will hereinafter be made) to August 1964, leaves no doubt that serious and continuing consideration was given by Jersey to self-development in the potash industry if entry by acquisition were not possible. During 1959 and 1960 Humble encountered potash deposits in Chavez County, New Mexico. It acquired federal and state potash rights in the area and drilled fifteen exploratory core holes during 1960 and 1961. It was finally decided to abandon this project and the state and federal rights were permitted to expire. Humble also examined cuttings from holes drilled in Eddy County, New Mexico, and acquired federal potash permits there. It drilled two exploratory holes but again found the results unfavorable and abandoned its permits. Prior to 1962 Humble had also done a limited amount of exploration in the Moab area of Utah adjacent to the producing facilities of Texas Gulf Sulphur. The results there were not encouraging, and, as a consequence, Humble decided that it would not retain any properties except those which would entail only nominal expense. During 1962 and 1963 Humble made preliminary studies of potash deposits in the Willis-ton Basin of Montana and North Dakota but the deposits proved too deep for conventional mining. In the year 1962 Colorado School of Mines Research Foundation undertook a study for Humble Oil to investigate investment opportunities of various non-petroleum minerals including potash and phosphate. Emphasis was placed upon good location and very high grade ore near the surface permitting low cost production. It was considered during 1962 that Humble might provide raw materials including phosphate and potash for Jersey’s Latin American fertilizer plants. During 1963 Humble gave consideration to joining with Peruvian Potash Company in the exploration of potash on certain property held by Peruvian, but this project was not pursued. Despite the fact that the efforts of Humble never reached the point where definite plans were formulated to bring a particular potash project into development, it nevertheless appears from the evidence that Humble, like other affiliates of Jersey exploring for oil, never abandoned the idea of locating and developing a profitable potash project. In connection with the discussion which will follow, further reference is now made to Jersey departments and affiliates that make recommendations on investment opportunities in the chemical field. Recommendations as to the commercial attractiveness of opportunities in the chemical field are made to the BAC and Executive Committee of Jersey primarily by Esso. In evaluating such investment opportunities Esso receives technical advice from the Producing Coordination Department of Jersey, and at times receives assistance from Jersey Production Research Corporation. It also evaluates the reports of consultants and the recommendations made by other departments and affiliates of Jersey. The Producing Coordination Department and Jersey’s Production Research Corporation in a report filed with Jersey in August 1961 and captioned “Exploration and Production of Phosphate and Potash,” pointed out that it would be advantageous to Jersey to have a source of raw materials for its fertilizer business and that acquisition should be considered either by purchase of producing properties or by discovery and, further,that Jersey geologists should include a search for potash and phosphate as well as for oil. This report particularly recommended exploratory work in 1962 and 1963 for potash and phosphate in the Philippines, West Pakistan, Peru, Venezuela, Argentina, the United States and Canada. Potash projects in Libya, Ethiopia and the French Congo were also considered. Jersey was approached by Homestake Mining in 1964 to determ