Full opinion text
MEMORANDUM OF DECISION AFTER EVIDENTIARY HEARING ON MOTIONS FOR PRELIMINARY INJUNCTIONS TIMBERS, Chief Judge: QUESTIONS PRESENTED In these actions brought by the United States (government), pursuant to Section 15 of the Clayton Act, 15 U.S.C. § 25 (1964), for declaratory and injunctive relief to enjoin the proposed acquisitions by International Telephone and Telegraph Corporation (ITT) of the stock of Grinnell Corporation (Grinnell) and of the stock of The Hartford Fire Insurance Company (Hartford), on the ground that the effect of the proposed acquisitions may be substantially to lessen competition in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18 (1964), the government’s motions for preliminary injunctions present the following basic questions in each ease: (1) Whether the government has sustained its burden of establishing a reasonable probability of success in proving its case on the merits upon final hearing. (2) Whether the alleged injury to the public interest resulting from denial of a preliminary injunction outweighs the alleged injury to defendants resulting from the granting of a preliminary injunction. (3) Whether, under all the circumstances here present, the interests of the respective parties, as well as the public interest, would be best served by the entry of a hold separate order to preserve the status quo pending hearing and decision of the case on the merits. For the reasons stated below, the Court denies the government’s motions for preliminary injunctions and directs that hold separate orders be entered in each case. JURISDICTION Jurisdiction with respect to the preliminary injunction relief sought is based upon Section 15 of the Clayton Act, 15 U.S.C. § 25 (1964), which authorizes at any time during the proceedings the issuance of an injunction to prevent and restrain a violation of Section 7 of the Clayton Act, 15 U.S.C. § 18 (1964). PRIOR PROCEEDINGS The instant actions were commenced by the filing of complaints on August 1, 1969. They seek adjudications that the respective merger agreements, entered into between ITT and Grinnell on March 3, 1969 (No. 13,319) and between ITT and Hartford on April 8, 1969 (No. 13,320), violate Section 7 of the Clayton Act. Preliminary and permanent injunctions against carrying out the respective mergers likewise are sought. Answers have been filed by the defendants in each action. The ITT-Grinnell merger agreement has been approved by the stockholders of both companies. The ITT-Hartford merger agreement has been approved by ITT’s stockholders; but the meeting of Plartford’s stockholders called for that purpose was adjourned to October 14, and subsequently to November 10. Temporary restraining orders were not sought, the parties having stipulated that neither of the proposed mergers would be consummated without adequate prior notice. The Court construes this to mean there will be no consummation of either merger until the entry of orders on the pending motions for preliminary injunctions. On August 6 the Court held a pre-trial conference with counsel at New Haven. A schedule was agreed upon for the serving and filing of papers in connection with the government’s preliminary injunction motions. The motions themselves were filed on August 6 and August 21 in the Grinnell and Hartford, cases, respectively. The last paper was filed on September 17. On September 17 evidentiary hearings began at New Haven on the motions. They were concluded on September 23. Counsel agreed upon a schedule for serving and filing proposed findings of fact and conclusions of law, the last of which were filed on October 7. The record before the Court consists of the pleadings; the government’s motions for preliminary injunctions; some 328 documentary exhibits received in evidence at the hearings, including numerous affidavits; and the testimony of 9 witnesses who testified at the hearings. The Court has been greatly assisted by the briefs, oral arguments and proposed findings of fact and conclusions of law from able counsel for all parties. PARTIES TO THE ACTIONS United States (Government) Plaintiff in each action is the United States acting through attorneys on the staff of the Antitrust Division of the Department of Justice and the United States Attorney for this District, all under the direction of the Attorney General. 15 U.S.C. § 25 (1964). International Telephone and Telegraph Corporation (ITT) ITT is a Delaware corporation. Its principal place of business is in New York City. It transacts business and is found in the District of Connecticut. ITT is engaged in interstate and foreign commerce in the United States and abroad. Its business includes international telecommunications, overseas telephone operations and a variety of manufacturing and service enterprises. It employs approximately 300,000 persons. ITT is the eleventh largest industrial corporation in the United States. During 1968 it had consolidated revenues of $4,066,502,000, consolidated net income of $192,404,000 and total assets of $4,-022,400,000 at the end of that year. ITT has 63,182,320 shares of common stock issued and outstanding in the hands of 144,053 shareholders. In addition, there are 64,483 holders of various issues of ITT preferred stock, all of which is convertible into ITT common stock. In recent years ITT has grown with respect to both volume and diversification of business. During the period 1955 through 1968, its total sales increased from $502,760,050 to $4,066,502,000. During the past decade, it has grown by mergers and acquisitions until today it has approximately 200 subsidiaries engaged in a wide variety of enterprises. During the period 1961 through 1968, ITT acquired or merged with 52 domestic and 55 foreign companies. Among its acquisitions during 1968 were Continental Baking Company, Sheraton Corporation of America, Levitt & Sons, Inc. and Rayonier, Inc. Since January 1, 1969, ITT’s Board of Directors has approved 22 domestic and 11 foreign acquisitions. Among its consummated 1969 acquisitions is the Canteen Corporation. Among its unconsummated 1969 acquisitions are the Grinnell Corporation and The Hartford Fire Insurance Company, subjects of the instant actions. Grinnell Corporation (Grinnell) Grinnell is a Delaware corporation. Its principal place of business is in Providence, Rhode Island. It transacts business and is found in the District of Connecticut. Grinnell is the 268th largest industrial corporation in the United States. During 1968 it had sales of $341,282,906, net income of $14,084,799 and assets of $184,453,229 at the end of that year. Grinnell has 1,424,556 shares of common stock issued and outstanding in the hands of 5,939 shareholders. In the two markets here claimed to be relevant, Grinnell’s products are as follows : Automatic Sprinkler Systems Grinnell is the largest manufacturer and installer of automatic sprinkler fire protection systems in the United States. It manufactures most of the major components of its systems, with the exception of the piping (nothing to do with power piping) which it purchases. Its 1968 revenues from the manufacture and installation of such systems was $67,096,150. Pipe Hangers Grinnell is a leading manufacturer of pipe hangers in the United States. Pipe hangers are support devices from which piping is suspended. There are many different types, depending on the size and weight of the pipe to be suspended and the material from which the support is to hang. They vary from simple U-shaped pieces of wire to complicated suspension systems requiring precision engineering. They are standardized rather than custom built for specific application. Pipe hangers are necessary components of automatic sprinkler systems and of power piping systems. Grinnell distributes pipe hangers through its 37 branch warehouses located throughout the United States. It had total sales of $13,348,000 from pipe hangers in 1966. The Hartford Fire Insurance Company (Hartford) Hartford is a Connecticut corporation. Its principal place of business is in Hartford, Connecticut. It transacts business and is found in the District of Connecticut. Among companies writing property and liability insurance through independent agents, Hartford ranks fourth in the United States; it ranks sixth among all property and liability insurance companies, including those which write directly. In 1968 it had premium receipts of $968,800,000, total adjusted operating income of $53,300,000 and consolidated assets of $1,891,700,000. Hartford has 21,696,878 shares of common stock issued and outstanding in the hands of 18,661 shareholders. Since 1960 Hartford has experienced substantial growth. Its net premiums increased from $531,995,000 in 1961 to $968,800,000 in 1968. From 1967 to 1968, its net premiums increased 10 per cent, its total adjusted operating income increased 24 per cent, its consolidated assets increased 9% and its policy holders surplus increased 10%. It has approximately $400,000,000 in surplus over the surplus required by law to be maintained to cover current insurance business (commonly referred to as “surplus surplus”). Although Hartford specializes in property and liability insurance, through a number of subsidiaries it also is engaged in the business of writing fire, marine, casualty, life and accident and health insurance, annuity contracts and surety bonds. It entered the life insurance field in 1959; by 1968 it had $2,400,000,000 of life insurance in force. Prior to entering into the merger agreement with ITT here at issue, Hartford made a study of possible diversification and acquisition of a number of industrial firms. MERGER AGREEMENTS The provisions of the respective merger agreements, to the extent relevant to the issues upon the instant preliminary injunction motions, may be summarized briefly. ITT-Grinnell Merger Agreement The ITT-Grinnell merger agreement provides that Grinnell, retaining its present name, will become a wholly owned subsidiary of ITT, the stockholders of Grinnell to become stockholders of ITT. Grinnell stockholders are to receive for each share of Grinnell common stock, 1.1 shares of ITT common stock and 1.2 shares of ITT cumulative preferred stock, $4.00 convertible Series K, each share of such ITT preferred stock to be convertible into 1.5625 shares of ITT common stock. The premium to be paid by ITT for each share of Grinnell stock, based on market values at the time of the hearing on the instant motions, is approximately $53 per share. Thus, the Grinnell stockholders stand to realize an aggregate gain of approximately $75,000,-000 if this merger is consummated. The agreement provides for its termination if the board of either company determines that the merger “has become inadvisable or impracticable by reason of the institution . . by . Federal governmental authorities . . . of material litigation . . . against Grinnell or ITT or both”. Both Grinnell and ITT have decided and have publicly announced that the merger agreement will be terminated in the event a preliminary injunction is issued enjoining consummation of the proposed ITT-Grinnell merger. ITT-Hartford Merger Agreement The ITT-Hartford merger agreement provides that Hartford will become a wholly owned subsidiary of ITT, the stockholders of Hartford to become stockholders of ITT. Hartford stockholders are to receive for each share of Hartford common stock, one share of ITT cumulative preferred stock, $2.25 convertible Series N, each share of such ITT preferred stock to be convertible into 1.25 shares of ITT common stock through September 1, 1972 and into 1.20 shares of ITT common stock thereafter. The premium to be paid by ITT for each share of Hartford stock, based on market values at the time of the hearing on the instant motions, is approximately $28 per share. Thus, the Hartford stockholders stand to realize an aggregate gain of approximately $600,000,000 if this merger is consummated. The ITT-Hartford merger agreement has a provision similar to that in the ITT-Grinnell agreement with respect to termination in the event of material litigation. ITT has decided and has publicly announced that the merger agreement will be terminated on its part in the event a preliminary injunction is issued enjoining consummation of the proposed ITT-Hartford merger. CONTROLLING STATUTE: SECTION 7 OF THE CLAYTON ACT The government’s actions to enjoin the proposed ITT-Grinnell and ITT-Hartford mergers are brought under Section 7 of the Clayton Act, as amended in 1950, 64 Stat. 1125, which prohibits the acquisition by one corporation engaged in commerce of the stock of another corporation engaged 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 . . ." Congress intended amended Section 7 to apply to all types of mergers which have substantial anti-competitive effects. Brown Shoe Co. v. United States, 370 U.S. 294, 317 (1962); Turner, Conglomerate Mergers and Section 7 of the Clayton Act, 78 Harv.L.Rev. 1313-14 (1965). Basically there are three types of mergers: horizontal, vertical and conglomerate. By common definition, a horizontal merger is the acquisition of one company by another company producing the same product or similar product and selling it in the same geographic market; a vertical merger is the acquisition of one company which buys the product sold by the acquiring company or which sells the product bought by the acquiring company; and a conglomerate merger is a merger other than a horizontal or vertical merger. Conglomerate mergers have been classified as pure and mixed. Turner, supra, at 1315. Many mergers have the characteristics of more than one of these types of mergers. The proposed ITT-Grinnell and ITT-Hartford mergers are conglomerate mergers; but the government claims that the ITT-Hartford merger has horizontal and vertical, as well as conglomerate, aspects. The statutory standard for determining if a merger violates Section 7 is whether its effect “may be substantially to lessen competition” (emphasis added). The statute thus deals with probabilities. Brown Shoe, supra, at 323. The test is whether it is probable that the merger will have an anti-competitive effect. Section 7 is not concerned with certainties. Since it is designed to stop anti-competitive practices “in their incipieney”, there is no requirement that “the anti-competitive power manifest itself in anti-competitive action before § 7 can be called into play.” FTC v. Procter & Gamble Co., 386 U.S. 568, 577 (1967). Although Section 7 is not concerned with certainties, it also is not concerned with possibilities. “The statute is concerned only with those mergers which may have demonstrable and substantial anti-competitive effects.” United States v. Atlantic Richfield Co., 297 F.Supp. 1061, 1066 (S.D.N.Y.1969); see Brown Shoe, supra, at 323. I ITT-GRINNELL MERGER The government seeks a preliminary injunction to enjoin the proposed ITTGrinnell merger. The Court is authorized by Section 15 of the Clayton Act to issue an injunction, at any time during the proceedings, to prevent and restrain violations of the Act, including Section 7. A preliminary injunction will not issue unless the government has established a reasonable probability of success in proving a Section 7 violation at trial. United States v. Ingersoll-Rand Co., 320 F.2d 509, 525 (3 Cir. 1963); United States v. Atlantic Richfield Co., 297 F.Supp. 1061, 1067 (S.D.N.Y.1969); United States v. Wilson Sporting Goods Co., 288 F.Supp. 543, 545 (N.D.Ill.1968); United States v. Chrysler Corp., 232 F.Supp. 651, 657 (D.N.J.1964); United States v. Crocker-Anglo National Bank, 225 F.Supp. 849, 850 (N.D.Cal.1963). The initial step, therefore, in deciding whether to issue a preliminary injunction to enjoin the proposed ITT-Grinnell merger, is to measure against the probability of success standard each of the specific claims upon which the government relies in asserting that the proposed merger will substantially lessen competition. The government’s contention that the proposed ITT-Grinnell merger will have substantial anti-competitive effects is based upon the following specific claims: (1) That the proposed merger will confer various marketing and promotional competitive advantages upon Grinnell which it would not otherwise have and which its competitors do not have. (2) That the proposed merger raises the probability of reciprocal dealing by creating a market structure conducive to such dealing. Each of these specific claims will now be considered and in the order set forth above. (1) Claim of Marketing and Promotional Competitive Advantages One of the government’s primary claims regarding the proposed ITT-Grinnell merger is that Grinnell, as the dominant competitor in several lines of commerce, will derive various marketing and promotional competitive advantages from the merger which will further entrench its position of dominance by raising barriers to entry to the relevant markets and discouraging smaller competitors from aggressively competing. The effect of such a merger, the government claims, will be substantially to lessen competition. The legal basis for this claim is a line of cases beginning with FTC v. Procter & Gamble Co., 386 U.S. 568 (1967). In Procter & Gamble, the FTC challenged a merger between Procter & Gamble, the largest manufacturer of household liquid bleach, and Clorox, the dominant competitor in its field accounting for 50% of total industry sales. One of the FTC’s chief arguments was that Procter & Gamble, a much larger company than Clorox and a large advertiser, was able to obtain quantity advertising discounts and would use such discounts to advantage over its competitors in advertising Clorox. The Supreme Court held that the merger violated Section 7 on the ground, in part, that “[T]he substitution of the powerful acquiring firm for the smaller, but already dominant, firm may substantially reduce the competitive structure of the industry by raising entry barriers and by dissuading the smaller firms from aggressively competing.” 386 U.S. at 578. In so holding, the Court noted that the merger was anti-competitive because “Procter would be able to use its volume discounts to advantage in advertising Clorox” and “[t]hus, a new entrant would be much more reluctant to face the giant Procter than it would have been to face the smaller Clorox.” 386 U.S. at 579. Similarly, in General Foods Corp. v. FTC, 386 F.2d 936 (3 Cir. 1967), cert. denied, 391 U.S. 919 (1968), the acquisition of S.O.S., a soap pad manufacturer and one of two firms which dominated that industry, by General Foods, a producer and distributor of packaged foods, was held to violate Section 7. The decision turned on the ground, among others, that S.O.S. gained a competitive advantage as a result of the merger because General Foods, a major national advertiser, was able to advertise and promote S.O.S. less expensively than S.O. S. had been able to do itself prior to the merger. The Court held that this would serve further to entrench S.O.S. in its leading market position. Mergers from which a dominant company will derive a marketing and promotional advantage other than volume advertising also have been held to violate Section 7. In United States v. Ingersoll-Rand Co., 320 F.2d 509 (3 Cir. 1963), the government sought an injunction against a partially conglomerate merger alleged to be in violation of Section 7. The merger involved the acquisition of three leading manufacturers of underground coal mining machinery by Ingersoll-Rand, a large manufacturer of industrial machinery. The Third Circuit upheld the injunction issued by the district court on the ground, among others, that “Ingersoll-Rand, by dominating the entire field of underground coal mining machinery, will be in a position to offer a complete line of equipment to its consumers and to further enhance its position and dominance in the market by extending consumer financing to prospective purchasers through its wholly owned subsidiary finance company.” 320 F.2d at 524. Accord: Allis-Chalmers Mfg. Co. v. White Consolidated Industries, Inc., 414 F.2d 506 (3 Cir. 1969), cert. denied, 396 U.S. 1009, 90 S.Ct. 567, 24 L.Ed.2d 501 (1970); United States v. Wilson Sporting Goods Co., 288 F.Supp. 543 (N.D.Ill.1968). The cases cited above indicate that when a company which is the dominant competitor in a relatively oligopolistic market is acquired by a much larger company, such acquisition violates Section 7 if the acquired company gains marketing or promotional advantages which will entrench or increase its dominant market position. Against this background of the decisional law in this area, the government’s claim in the instant case with respect to competitive advantages raises two basic factual questions. First, is Grinnell the dominant competitor in the lines of commerce relied on by the government? Second, will the proposed merger give Grinnell the competitive advantages claimed by the government? Turning to the question of Grinnell’s dominance, the first step in determining whether Grinnell is a dominant competitor in relatively oligopolistic markets is to define the relevant product and geographic markets. The government appears to rely on two product markets : automatic sprinkler systems, with the manufacture of sprinkler devices and the installation of sprinkler systems constituting relevant submarkets; and pipe hangers, with several product submarkets. The government asserts that the relevant geographic market is the national market. While the government does not define the relevant markets as fully or precisely as required by controlling law, see Brown Shoe Co. v. United States, 370 U.S. 294, 325-28 (1962), nevertheless, for purposes of the instant preliminary injunction motion, the Court accepts the government’s claim as to the relevant product and geographic markets involving Grinnell. The next step is to determine whether Grinnell is the dominant competitor in these markets and whether these markets are oligopolistic in nature. The government has introduced considerable statistical data in support of its claim that Grinnell is the dominant competitor in the sprinkler industry and in the pipe hanger industry. The lack of organization and correlation of such data, together with its fragmentary nature, has made exceedingly difficult the Court’s task of properly assessing its value with relation to the question to be determined. Nevertheless, the Court has reached certain conclusions based on the evidence presented. As for the manufacture of sprinkler devices, there is uncontroverted evidence that Grinnell is the leading manufacturer in the United States. There also is evidence that Grinnell controls less than 25% of the market; and that it has three sizable competitors, together with a number of smaller ones who maintain a position in the market. While Grinnell may be the leading manufacturer, this evidence does not support a finding of dominance. The mere fact of Grinnell’s large size does not establish dominance in a market apparently as balanced and with as many competitors as this one. As for the installation of sprinkler systems, the statistical data introduced by the government indicates that Grinnell’s share of the market is in excess of 25%; and that it has two sizable competitors. While this evidence indicates that Grinnell’s share of the market is larger in the installation of sprinkler systems than in the manufacture of sprinkler devices and that its competitors are not as close in installation as in manufacture, such evidence still does not establish that Grinnell is dominant in the installation market. Finally, as for pipe hangers, the statistical data does make a prima facie showing that Grinnell is the dominant competitor in this market and that it is an oligopolistic market. In short, the most that can be said regarding the evidence introduced relative to the government’s claim that Grinnell is the dominant competitor in several oligopolistic markets is that the evidentiary record at this stage of the proceedings appears to establish that Grinnell is the dominant competitor in the pipe hanger market, but does not permit a finding that Grinnell is the dominant competitor in the automatic sprinkler market. Assuming that Grinnell could be characterized as the dominant competitor in any of the relevant product markets, there remains the question whether Grinnell will gain the competitive marketing and promotional advantages claimed by the government to result from the proposed merger. In this regard, the government claims that Grinnell will gain competitive advantages as a result of the merger in the following specific respects: (a) Through creation of an opportunity to engage in system or package selling. (b) Through affiliation with Hartford. (c) Through access to ITT’s financial resources. (d) Through foreclosure of Grinnell’s competitors from foreign sales. (a) Package or System Selling The government claims that the merger will lessen competition within the meaning of Section 7 because it will give Grinnell a competitive marketing advantage by creating an opportunity for Grinnell to include additional products in its line and to engage in package or system selling. The government’s claim in this regard embraces both automatic sprinklers and pipe hangers; but only automatic sprinklers will be discussed here in detail, since the government’s assertion concerning the opportunity for package selling of sprinklers is representative, and there is more evidence as to this product than with respect to package selling of pipe hangers. Underlying the claim concerning package selling of sprinklers is the contention that the proposed merger will create an opportunity for such selling in that sprinklers could be offered in a package with ITT plumbing, heating and air conditioning products. In support of this contention, the government has introduced affidavits to the effect that sprinklers could be included in an overall plumbing, heating and air conditioning package; and that ITT, through its Technical Industrial Products Group, is a leading factor in various areas of the heating, air conditioning and industrial controls field. Defendants, on the other hand, challenge the government’s contention that the merger will create the opportunity for package selling of sprinklers. They have introduced affidavits directly contradicting the government’s affidavits on this point. Defendants’ affidavits are mainly from executive officers of Grinnell competitors. For example, according to one of defendants’ affidavits, sprinkler installation is a specialty business that does not lend itself to integration with sales of other products or services. On this point, one of the government’s affidavits states that “it is generally required that a specialty sprinkler contractor” do sprinkler work. Another of defendants’ affidavits is to the effect that sprinkler installers generally do not take on other forms of contracting; and that they specialize in sprinkler work because it has been their experience that this is the most successful way of conducting their business. Still another of defendants’ affidavits states that there are no opportunities for package selling of sprinkler installations with other products because sprinkler work is almost always awarded on the basis of bids, and bid solicitations are usually confined to sprinkler installations. In addition, defendants have introduced another affidavit stating that, although Grinnell presently is in a position to offer sprinklers in a package with plumbing, heating and air conditioning products inasmuch as it handles these products through its nationwide warehousing system, it has not done so. Defendants point to this as indicative that there is no competitive advantage in package selling of sprinklers. In short, the evidence as to whether the merger will create an opportunity for package selling of sprinklers at best is conflicting. It consists wholly of affidavits from both sides. There is no basis upon which the Court would be warranted in giving more weight to those of the government than to those of defendants. General Electric Co. v. American Wholesale Co., 235 F.2d 606, 608-9 (7 Cir. 1956); Warner Bros. Pictures, Inc. v. Gittone, 110 F.2d 292, 293 (3 Cir. 1940); Hershey Creamery Co. v. Hershey Chocolate Corp., 269 F.Supp. 45, 57 (S.D.N.Y.1967). And the government’s case with regard to package selling of sprinklers is representative of its case with regard to pipe hangers; if anything, the former is stronger than the latter. Consequently, while recognizing the possibility that the government at trial may establish that Grinnell will derive a competitive advantage from the proposed merger in the form of opportunities for package or system selling, on the present state of the record at this stage of the proceedings the Court is not able to make a finding that the government has established a probability of success upon final hearing with respect to its package or system selling claim. (b) Affiliation with Hartford The government also contends that Grinnell will gain competitive advantages from the proposed ITT-Grinnell merger through affiliation with Hartford. Although the government advances various arguments in support of this contention, its chief argument is that, since the fire insurance and automatic sprinkler industries are closely related, Hartford would be in a position to assist Grinnell in securing sales by recommending Grinnell sprinkler systems to its fire insurance customers. This being the government’s strongest argument, it will be discussed in detail, to the exclusion of the others. The government’s position in essence is that Grinnell’s selling advantage will be enhanced through its affiliation with Hartford because presumably Hartford can use its position and influence with the companies to which it sells fire insurance to secure business for Grinnell. The government’s contention raises two factual questions. First, will Hartford in fact have the opportunity to recommend Grinnell sprinkler systems to the companies to which it sells fire insurance? Second, would such a recommendation in fact help Grinnell in securing business and have the effect of foreclosing to Grinnell’s competitors a substantial share of the sprinkler market? As for Hartford’s opportunity to recommend Grinnell sprinkler systems to its fire insurance customers, the evidence does not clearly establish that Hartford will have such opportunity. While there is considerable evidence that fire insurance agents are in a position to recommend sprinkler systems to their customers, there also is evidence that much of Hartford’s fire insurance is written through independent agents who represent a number of companies. The government’s evidence that such agents would have the incentive, and would be willing, to recommend sprinkler systems of an affiliate of an insurance company they represent is inconclusive at best. And defendants have introduced substantial evidence to the contrary. Defendants’ evidence also shows that many automatic sprinkler systems are installed in large buildings insured by insurance pools. This evidence indicates that such pools give sprinkler specifications, but do not recommend manufacturers and installers, and are not subject to the control of a particular insurer such as Hartford. From such evidence it does not appear that these pools would recommend Grinnell sprinklers simply because of Grinnell’s affiliation with Hartford. Assuming that Hartford and the agents who represent Hartford do have the opportunity to recommend Grinnell sprinklers, the evidence does not clearly establish that such recommendations would be likely to help Grinnell secure business and foreclose Grinnell’s competitors from a substantial share of the market. There is evidence that, since many sprinkler contracts are awarded on the basis of competitive bids, recommendations of a fire insurance company or its agents would have little or no effect; the controlling factor is the bid rather than a recommendation. There also is evidence that, since a large proportion of sprinkler work is ordered through general contractors or architects, a recommendation of a particular sprinkler system by a fire insurance company or its agents would be misplaced; general contractors and architects are generally familiar with the available sprinkler systems and do not depend on recommendations by insurance companies or agents in determining which system to order. Finally, there is some evidence indicating that a Hartford-Grinnell affiliation might even be disadvantageous to Grinnell in this sense: agents who do not represent Hartford might be reluctant to recommend sprinklers made or installed by Grinnell, an affiliate of a competitor, even though under other circumstances they might make such a recommendation. In short, the evidence does not establish that Grinnell would in fact derive competitive advantages from the proposed ITT-Grinnell merger through affiliation with Hartford. The government’s argument that Hartford would be able to recommend Grinnell ■ sprinkler systems to its fire insurance customers is representative of — and, if anything, stronger than- — the other arguments it advances in support of its claim that Grinnell will gain various competitive advantages from the proposed merger through affiliation with Hartford. The record similarly fails to establish a factual basis for the government’s additional arguments. Whatever the possibilities may be of the government being able to prove at trial its claim with respect to the alleged competitive advantages Grinnell will derive from such an affiliation with Hartford, the record at this stage of the proceedings clearly does not permit a finding that the government has established a reasonable probability of success with respect to this claim at final hearing. (c) Access to ITT’s Financial Resources ' The government further contends that Grinnell will gain a competitive marketing advantage through access to ITT’s financial resources; and that such resources will enable Grinnell to finance credit sales of its sprinklers, to expand its leasing plan for sprinklers and to increase its advertising and sales promotion. Whether access to ITT’s financial resources in fact would give Grinnell a competitive advantage is highly doubtful on the present record. Defendants have introduced evidence that Grinnell already is in a position to offer credit and leasing arrangements to purchasers of sprinkler systems without assistance from ITT ; and that Grinnell already is in a position substantially to expand its advertising but has refrained from doing so because it does not believe it would be beneficial. Under these circumstances, defendants point out that access to ITT’s financial resources can hardly be viewed realistically as a competitive advantage since Grinnell is fully capable of engaging in financing, leasing and advertising to the extent it wishes even if the merger does not occur. Cf. United States v. Wilson Sporting Goods Co., 288 F.Supp. 543, 553 (N.D.Ill.1968). The government has not established a reasonable probability of success with respect to its financial resources claim at final hearing. (d) Foreclosure of Grinnell’s Competitors from Foreign Sales Finally, the government contends that Grinnell will derive a marketing and promotional competitive advantage from the proposed ITT-Grinnell merger in that ITT will be able to assist Grinnell in overseas expansion, leading to a foreclosure of Grinnell’s competitors from foreign markets. The legal basis for this claim is doubtful, since Section 7 proscribes acquisitions the effect of which may be substantially to lessen competition “in any section of the country.” While the government asserts that foreclosure of Grinnell’s competitors from foreign markets will result in substantial lessening of competition in the domestic market, the record is barren as to precisely how this will occur. Moreover, the factual basis for the government’s claim is questionable inasmuch as the evidence concerning the assistance which ITT would be able to give Grinnell in foreign expansion and Grinnell’s present position in foreign markets is conflicting and inconclusive. The government has not established a reasonable probability of success at final hearing with respect to its claim of foreclosure of Grinnell’s competitors from foreign sales. (2) Claim of Reciprocal Dealing In addition to its claim that the proposed ITT-Grinnell merger will substantially lessen competition by conferring marketing and promotional competitive advantages on Grinnell, the government also claims that the proposed merger will give rise to reciprocal dealing by creating a market structure conducive to “reciprocity” and “reciprocity effect”. As used here, reciprocity refers to a seller’s practice of utilizing the volume or potential volume of its purchases to induce others to buy its goods or services; and reciprocity effect refers to the tendency of a company selling or desiring to sell to another company to channel its purchases to that company. The government asserts that as a result of the proposed merger ITT will be able to exert pressure on its suppliers to transfer their purchases of automatic sprinklers and pipe hangers to Grinnell by conditioning ITT’s purchases of supplies on the suppliers’ agreement to purchase Grinnell’s products. The government asserts that, even if there were no pressure from ITT, its suppliers nevertheless would tend to transfer their purchases of automatic sprinklers and pipe hangers to Grinnell in order to gain favor with ITT. While the government claims that Grinnell is likely to be a substantial beneficiary of reciprocal purchasing arrangements involving both automatic sprinklers and pipe hangers, its claim with respect to sprinklers is stronger and supported by more substantial evidence than its claim concerning pipe hangers. Accordingly, only the sprinkler claim will be discussed here in detail. The factual basis for the government’s claim with respect to reciprocal dealing rests on the theory that the proposed merger will create a market structure conducive to such dealing. The government contends that ITT suppliers are significant actual or potential purchasers of sprinklers; and it asserts that, since they are significant purchasers, the proposed merger will create an opportunity for reciprocal purchasing arrangements involving sprinklers. In support of this contention, the government has introduced statistical data showing that ITT is a substantial purchaser of goods and services from numerous domestic suppliers, including some of the nation’s leading industrial concerns. Specifically, the government’s evidence shows that in a given year ITT purchased at least $350,000,000 of goods and services from industries which account for 28% of total new plant and equipment expenditures by all United States industries, and 67% of total new plant and equipment expenditures by all manufacturing industries. This evidence is essentially undisputed by defendants. Defendants, however, assert that in most instances the individuals responsible for making sprinkler purchasing decisions do not have any supplier relationship with ITT. Defendants’ evidence shows that approximately 30% of automatic sprinkler systems are sold to educational institutions, hospitals, retail establishments and other non-industrial organizations, none of which are significant ITT suppliers; and that approximately 80% of the remaining sales are made in connection with new construction where sprinkler work is done on a bid basis by general or mechanical contractors who are not significant ITT suppliers either as a group or individually. Defendants point out, therefore, that while the ultimate purchasers of sprinkler systems may be ITT suppliers, they have nothing to do with the actual purchasing; and that the immediate purchasers of sprinkler systems are not ITT suppliers. Thus, although ITT suppliers represent a significant market for sprinklers, the evidence shows that most of the actual purchasers of sprinklers are not ITT suppliers. Moreover, the question of whether a merger will create an opportunity for reciprocal dealing is complex. The answer depends on many variables. The extent to which ITT suppliers are actual or potential purchasers of sprinklers is not the only factor relevant to a determination of whether the proposed merger will result in the creation of an opportunity for reciprocal dealing. Other relevant factors are whether sprinklers have product characteristics which lend themselves to reciprocal dealing; the scope of the market, represented by ITT, for products sold by ITT suppliers; the size and diversification of other companies to which ITT suppliers sell their products; and the degree to which the markets within which ITT suppliers operate are competitively structured. Turner, Conglomerate Mergers and Section 7 of the Clayton Act, 78 Harv.L.Rev. 1313, 1387-88 (1965); Brodley, Oligopoly Power Under the Sherman and Clayton Acts, 19 Stan.L.Rev. 285, 327 (1967). In connection with most of these critical factors, little or no evidence has been offered on the instant preliminary injunction motion. In short, the inconclusive record at the present stage of the proceedings does not permit the Court to make a finding as to whether the proposed merger will create a market structure conducive to reciprocal dealing. Even if the proposed merger were to create an opportunity for reciprocal dealing, it does not necessarily follow that such dealing will in fact occur, as the government claims. The evidence introduced by the government in support of its position that such dealing will occur consists mainly of an economist’s affidavit containing general statements to the effect that reciprocity is a common business practice, and affidavits from some of Grinnell’s competitors expressing fears that it will occur. The former does not deal directly with the practice of reciprocity in relation to the sprinkler business; the latter consist primarily of conclusory and speculative statements which simply infer that reciprocity will occur if the merger creates an opportunity for it. Such affidavits are of doubtful probative value. Nor has the government shown either that possible reciprocal dealing advantages played a part in the decision of ITT and Grinnell to merge, or that the parties to the merger practice reciprocity. Defendants, on the other hand, have introduced considerable evidence to the effect that, even if the merger were to create an opportunity for reciprocal dealing, they would not avail themselves of such opportunity; and that reciprocity effect is unlikely. Defendants’ uncontroverted evidence shows that ITT has a written policy against reciprocity which has been disseminated to its purchasing and sales personnel; and that ITT does not collect purchasing and sales data necessary to identify reciprocal purchasing opportunities. Furthermore, defendants have adduced evidence that the “profit center” concept, around which ITT is organized, is not conducive to reciprocity. Under this concept each division and subsidiary has its own separate decentralized purchasing and sales department. The compensation and promotion of the individuals who manage each profit center is determined by the performance of their own profit center, not by the performance of ITT as a whole. Affidavits by Mr. Geneen, President of ITT, and Mr. Baekman, an economist, bear this out: that the management of each profit center would resist reciprocal dealing arrangements because they would only increase the volume and profits of other profit centers and often would result in purchases of more expensive and poorer quality goods by the profit center which engaged in such reciprocity. Finally, defendants point out that reciprocity effect is unlikely, given ITT’s anti-reciprocity policy, implemented by the withholding of purchasing and sales data and the organization of ITT around the profit center concept; and that, even if ITT suppliers on their own initiative were to purchase sprinkler systems and pipe hangers from Grinnell without pressure from ITT in an effort to gain favor with ITT and to obtain reciprocal sales, such suppliers would find that their purchases would not have the desired effect for the reasons just stated, and they would soon discontinue such abortive efforts. The substantial, credible evidence introduced by defendants to the effect that reciprocal dealing is unlikely, even if the proposed merger were to create the opportunity for such dealing, precludes any finding based on what amounts to an inference suggested by the government that reciprocal dealing will occur. Accordingly, since the record as it now stands does not establish either the extent to which the proposed merger will create a market structure conducive to reciprocal dealing or the extent to which reciprocal dealing will occur if the merger were to create an opportunity for such dealing, the Court holds that the government has not demonstrated a reasonable probability of success at final hearing in establishing the factual basis for its claim with respect to reciprocal dealing. Even if the government had established a factual basis for its claim with respect to reciprocal dealing, it still would be required to demonstrate a reasonable probability of success in establishing the legal basis for such claim. The government contends as a matter of law that, once it has shown a merger will create an opportunity for reciprocity dealing, that is sufficient to halt the merger under Section 7. In support of its position, the government relies on FTC v. Consolidated Foods Corp., 380 U.S. 592 (1965); Allis-Chalmers Mfg. Co. v. White Consolidated Industries, Inc., 414 F.2d 506 (3 Cir. 1969), cert. denied, 396 U.S. 1009, 90 S.Ct. 567, 24 L.Ed.2d 501 (1970); United States v. Ingersoll-Rand Co., 320 F.2d 509 (3 Cir. 1963); United States v. General Dynamics Corp., 258 F.Supp. 36 (S.D.N.Y. 1966). These decisions, however, in the opinion of this Court, are readily distinguishable from the instant case. The Supreme Court in Consolidated Foods held that a merger which gives rise to reciprocal dealing violates Section 7. In so doing, it affirmed the FTC determination that the acquisition of Gentry, Inc., a manufacturer of dehydrated onion and garlic, by Consolidated Foods, a large food wholesaler, made possible reciprocal dealing on the part of Consolidated, its suppliers and Gentry. Since Consolidated was a large purchaser of the products of food processors who in turn purchased dehydrated onion and garlic for use in their products, the Court held there was an opportunity for reciprocity arrangements as a result of the merger. Significantly, from the standpoint of the instant case, the Court was not required to pass on the question of whether a mere showing that a merger will create a market structure favorable to reciprocal dealing, standing alone, is sufficient to proscribe a merger under Section 7, because there also was post-acquisition evidence of efforts by Consolidated to induce its suppliers to enter into reciprocal purchasing arrangements. The majority opinion does state that “ [reciprocal trading may ensue not from bludgeoning or coercion but from more subtle arrangements”, 380 U.S. at 594; and this could be interpreted to mean that evidence of an actual reciprocity program is not a prerequisite for a Section 7 violation. Mr. Justice Stewart, however, stated in his concurring opinion: “Clearly the opportunity for reciprocity is not alone enough to invalidate a merger under § 7. The Clayton Act was not passed to outlaw diversification.” 380 U.S. at 603. Consolidated Foods was followed by the district court in General Dynamics, where the acquisition of Liquid Carbonic, a producer and distributor of carbon dioxide and carbon dioxide products, by General Dynamics, a large manufacturer, was held to violate Section 7 because it resulted in reciprocal dealing. General Dynamics is similar to Consolidated Foods in that in both eases the showing with respect to the probability of reciprocity was not limited to evidence that the proposed mergers created merely an opportunity for reciprocal dealing. In General Dynamics there was post-acquisition evidence of an actual reciprocity program, as well as evidence that the opportunity to engage in reciprocal dealing was one of the primary motives for the acquisition of Liquid Carbonic by General Dynamics. In the instant case, in contrast to Consolidated Foods and General Dynamics, the showing with respect to the probability of reciprocal dealing is essentially limited to evidence that the merger will create a market structure conducive to reciprocal dealing practices. There is little or no evidence of any actual reciprocity program; of plans for a reciprocity program; that reciprocity has been or is practiced by ITT, its suppliers, or Grinnell; or that reciprocity is common in the automatic sprinkler and pipe hanger industries. Ingersoll-Rand and Allis-Chalmers, unlike Consolidated Foods and General Dynamics, do reach the question of whether the creation of an opportunity to enter into reciprocity arrangements as the result of a merger is sufficient standing alone to support a finding of a Section 7 violation. In Ingersoll-Rand, the Third Circuit upheld the granting of a preliminary injunction enjoining the acquisition of three leading manufacturers of underground coal mining machinery by Ingersoll-Rand, a large manufacturer of industrial machinery, on the ground, among others, that the acquisition created an opportunity for reciprocity. After noting that Ingersoll-Rand was a large steel purchaser and that the steel industry was one of the largest markets for coal, the court quoted with approval from the opinion of the district court as follows: “It is not overly speculative to assume that the judicious use of its steel-purchasing power by Ingersoll-Rand could immeasurably increase the sales by the acquired companies of machinery and equipment to the coal mining companies which acutely need the continued goodwill of the steel industry. Moreover, the mere existence of this purchasing power might make its conscious employment toward this end unnecessary; the possession of the power is frequently sufficient, as sophisticated businessmen are quick to see the advantages in securing the goodwill of the possessor. Certainly the steel producer who seeks orders from Ingersoll-Rand may tend to prefer the acquired companies as the source of supply of equipment used in his ‘captive’ mines, and the advantages accruing to him from so favoring the acquired companies would not have to be pointed out by Ingersoll-Rand. What may here be involved is the trade practice known as ‘Reciprocity’.” 320 F.2d at 524 (Emphasis added) Allis-Chalmers is to the same effect. There the Third Circuit ordered that a preliminary injunction be issued against the acquisition of Allis-Chalmers, a diversified manufacturing company, by White Consolidated Industries, a larger diversified manufacturer, on the ground, in part, that the acquisition would create an opportunity for reciprocal dealing in that Allis-Chalmers and White were major purchasers of steel from steel companies which were principal customers of a White subsidiary. The court stated: “An acquisition which creates a market structure conducive to reciprocal dealing presents the acquiring company with an advantage over competitors, an advantage which by its very nature is anticompetitive [citing Consolidated Foods'].” 414 F.2d at 518. While Ingersoll-Rand and Allis-Chalmers lend strong support to the theory that a merger which will bring about a market structure favorable to reciprocal dealing offends Section 7, there is a crucial factual distinction between these two cases and the instant case. In Ingersoll-Rand and AUis-Chalmers, there was no evidence of company policy against reciprocal dealing; in the instant case there is evidence to that effect which the Court regards as substantial, credible and persuasive. Such evidence is significant in the light of United States v. Penick & Ford, Ltd., 242 F.Supp. 518 (D.N.J. 1965), and United States v. Northwest Industries, Inc., 301 F.Supp. 1066 (N.D. Ill. 1969). In Penick & Ford, the government sought to enjoin the acquisition of Penick & Ford, the fourth largest seller of starch, by Reynolds Tobacco Co. The government argued that, since Reynolds was a major buyer of paper and Penick & Ford sold starch to paper companies, there was a probability of reciprocity as a result of the merger, particularly in view of evidence that reciprocity had been and was a common practice in the starch industry. Reynolds, however, submitted affidavits that there was a company policy against reciprocal dealing. The government did not offer evidence to the contrary. The court refused to enjoin the acquisition on the ground, among others, that there had not been a sufficient showing that Reynolds would engage in reciprocal dealing. 242 F.Supp. at 525-6. In Northwest Industries, the government sought to enjoin the acquisition of B. F. Goodrich Company, a diversified manufacturer, by Northwest Industries, one of the nation’s largest industrial corporations. The government contended that, since the acquisition of Goodrich by Northwest would increase Northwest’s volume of purchases, it was probable that the merger would result in reciprocal dealing. In addition, the government’s evidence showed that subsidiaries of Northwest, as well as customers and suppliers of Goodrich and Northwest, had been and were engaged in reciprocal dealing. Northwest introduced evidence that it had a policy against reciprocal dealing, considered reciprocal buying practices uneconomical and had no machinery for effectuating such practices. The court found that “while it is clear that the potential for reciprocity would be substantially increased, the extent to which actual reciprocity would be practiced ... is, on the basis of the present record, difficult if not impossible to forecast.” 301 F.Supp. at 1095. Accordingly, the court refused to enjoin the merger on the ground, in part, that it had been “unable to find that the government has demonstrated probable success . . . with respect to the anti-competitive effect of the increased potential for reciprocity inherent in a combined Northwest-Goodrich.” 301 F.Supp. at 1097. Defendants’ position in the instant case, if anything, is somewhat stronger than that of the defendants in Penick & Ford and Northwest Industries. Here, unlike Penick & Ford and Northwest Industries, the government has not established the existence of an organized reciprocity program or a prior history of reciprocal dealing by defendants or their suppliers. The legal basis for the government’s claim with respect to reciprocal dealing rests on the contention that the mere showing that a merger will create a market structure conducive to reciprocal dealing, even in the teeth of substantial evidence which convinces the Court that defendants will not engage in reciprocal dealing, is sufficient to halt a merger under Section 7. Even if the Court were to reach the legal basis for the government’s reciprocal dealing claim in the instant case, it is doubtful at best, upon the present state of the decisional law, that the government has demonstrated a reasonable probability of success at final hearing on this claim. Since the government has not established either a factual basis or a legal basis for its claim that the proposed ITT-Grinnell merger will substantially lessen competition by creating a market structure conducive to reciprocal dealing, the Court concludes, as to this claim, that the government has not sustained its burden of establishing a reasonable probability of success on the merits upon final hearing. II ITT-HARTFORD MERGER The government seeks a preliminary injunction to enjoin the proposed ITT-Hartford merger, as well at the proposed ITT-Grinnell merger, on the ground that it violates Section 7. As indicated earlier, a preliminary injunction will not issue unless the government has demonstrated a reasonable probability of success in proving a Section 7 violation at trial. It is necessary in the case of the ITT-Hartford merger, as in the case of the ITT-Grinnell merger, to measure against the probability of success standard each of the specific claims upon which the government relies in asserting that the proposed merger will substantially lessen competition. With regard to the proposed ITT-Hartford merger, the government makes the following specific claims: (1) That the proposed merger raises the probability of reciprocal dealing by creating a market structure conducive to such dealing. (2) That the proposed merger will confer a competitive advantage in giving ITT’s subsidiaries access to Hartford’s surplus funds to use in financing expansion plans. (3) That the proposed merger has vertical integration aspects. (4) That the proposed merger has horizontal aspects in that it will eliminate actual and potential competition between ITT and Hartford. (5) That, as a result of the proposed ITT-Hartford and ITT-Grinnell mergers, Grinnell’s affiliation with Hartford will confer a competitive advantage. Each of these specific claims will now be considered and in the order set forth above. (1) Claim of Reciprocal Dealing The government’s primary claim regarding the proposed ITT-Hartford merger is that it will substantially lessen competition by creating a market structure conducive to reciprocal dealing, leading to reciprocal purchasing arrangements. The government asserts that as a result of the proposed merger ITT will be able to exert pressure on its suppliers to switch their insurance business to Hartford by conditioning ITT’s purchases of supplies on the suppliers’ agreement to purchase insurance from Hartford. The government also asserts that, even if there were no pressure from ITT, its suppliers nevertheless will tend to switch their insurance business to Hartford in order to curry favor with ITT. The first question is whether the government has established an adequate factual basis to support its claim with repect to reciprocal dealing, which rests on the theory that the proposed merger will create a market structure conducive to such dealing. Underlying this theory is the contention that ITT suppliers are significant actual or potential purchasers of insurance of the type Hartford sells. The government’s basic position is that they are significant insurance purchasers; and it asserts that, since they are significant purchasers, the proposed merger creates an opportunity for reciprocal dealing because ITT suppliers might transfer their insurance business from their present insurers to Hartford. In support of this position, the government has submitted statistical data showing that ITT suppliers represent a substantial percentage of insurance markets, ranging from 6%% in the case of property and liability insurance to 19% in the case of group health, life and accident insurance written for employers and sold to employees as group insurance. Evidence introduced by defendants on the other hand easts doubt on the accuracy of such data. The proposed merger obviously will not create an opportunity for reciprocal dealing unless ITT suppliers are significant actual or potential customers for insurance of the type Hartford sells. But even if they do represent a substantial insurance market, it does not necessarily follow that the proposed merger will create such an opportunity. As indicated in connection with the ITT-Grinnell merger, there are several factors relevant to a determination of w