Full opinion text
MEMORANDUM OPINION AND ORDER CONTIE, District Judge. Plaintiff The Babcock & Wilcox Company (hereinafter B&W) initiated this action on April 4,1977, seeking to permanently enjoin the proposed tender offer of defendant United Technologies Corporation (hereinafter U.T.) for the outstanding common stock of B&W. In light of the urgency of this matter to the parties, the Court has endeavored to hear and resolve the issues presented as expeditiously as practicable. The following shall constitute the Court’s findings of fact and conclusions of law as required by Rule 52, Federal Rules of Civil Procedure. I. FACTUAL BACKGROUND The Babcock and Wilcox Company is a publicly held corporation duly organized and existing under the laws of the State of New Jersey. Its corporate headquarters are located in New York, New York, but it has substantial facilities within northeast Ohio. B&W is a manufacturer of four broad classes of products: steam generating and associated equipment, including fossil steam boilers and nuclear steam systems, for utility, marine, and industrial applications; automated machines and machine tools; refractory products; and tubular products. The industries served by these B&W products, exclusive of electric utilities and the U. S. Government, include the following: machine; chemical and petroleum; transportation; metal and metal products; and pulp and paper. United Technologies Corporation is a publicly held Delaware corporation. Its principal executive offices are in Hartford, Connecticut, although it has facilities located in 23 states. U.T. is engaged in the design, development, and manufacture of products within three rather clearly defined spheres or lines of business: power, systems, and industrial. Products within its power line include aircraft jet engines, gas turbines, solid propellant rocket boosters and motors, and rocket engines. Examples of its systems products are automotive systems and controls, helicopters, flight systems, and space equipment. Finally, U.T.’s industrial line of business is typified by products such as elevators and escalators, and wire, cable, and electrical circuit systems and control devices for the transmission and control of electrical energy. These high technology products are utilized in the aerospace, automotive, electrical communications, construction, and other industries.- In late February 1977, U.T., after an extensive study of B&W with a view toward acquisition, initially contacted B&W ostensibly to discuss research and development concepts. During the ensuing series of conversations between top level management of the respective corporations, U.T. proposed a merger, pointing to the advantages and benefits to be derived from such a combination. It was U.T.’s hope that a friendly merger could and would be effected. Thereupon, B&W’s senior officials engaged in internal discussions concerning U.T.’s proposal and undertook a review thereof. As a result, B&W’s management informed U.T. that the enthusiasm for the proposed merger was not shared, and that it envisioned possible antitrust and other legal problems. Despite B&W’s apparent lack of interest in the combination, U.T. nonetheless decided to pursue the matter. Subsequently on March 28, 1977, U.T. transmitted to B&W documents containing the proposed tender offer for B&W’s common stock and a suggested press release. The following morning in a conversation between top executives of the two companies, B&W privately responded negatively to the proposal. On the afternoon of March 29, 1977, U.T. publicly announced that it proposed to offer to purchase all the outstanding common stock of B&W at a price of $42 per share, which represented a 20% premium over the previous day’s closing market price. Such proposed tender offer, if made, obligates U.T. to purchase all shares tendered by B&W shareholders within a specified period of time. U.T.’s obligation to purchase is, however, subject to its retained right to terminate the offer upon the occurrence of certain contingencies delineated in the offer itself. It is further contemplated that at such time as the offer is made, an Offer to Purchase meeting the requirements of the Securities and Exchange Commission with regard to full disclosure of material information will be made available to all B&W shareholders. By letter dated March 29, 1977, B&W expressed its intention to further study the proposal, and its opinion that to act without so doing in light of the magnitude of the undertaking would clearly be improper. Following this letter, there was an exchange of correspondence between U.T. and B&W relative to the proposal and their respective positions. Further, on March 31, 1977, B&W itself issued a press release stating that its Board of Directors, in considering U.T.’s proposal, deemed it advisable to secure additional information on the adequacy of the offer, and on what it viewed as serious legal problems attendant thereto. After additional correspondence in which U.T. again suggested discussions between the two and B&W rejected the proposed offer, B&W sent a letter dated April 4,1977 to its shareholders. In that letter, B&W stated that it had rejected U.T.’s proposal to acquire B&W, and that it had filed suit in federal court seeking an injunction to block U.T.’s alleged illegal attempt to gain control of B&W. The lawsuit referred to therein is the instant action. II. PLEADINGS Plaintiff’s complaint herein was filed as stated above on April 4, 1977 requesting equitable relief in the form of a permanent injunction. The jurisdiction of the Court is invoked pursuant to 15 U.S.C. §§ 15,22, and 26; 42 U.S.C. §§ 2234, 2239, and 2273; 15 U.S.C. § 78aa; and 28 U.S.C. §§ 1331, 1332, and 1337. The complaint sets forth twelve claims for relief. Essentially it alleges violations of the Clayton Act, 15 U.S.C. § 12 et seq.; the Atomic Energy Act of 1954, 42 U.S.C. § 2011 et seq.; the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.; the Ohio “Take-over bid” statute, Ohio Revised Code § 1707.041; and the common law. Specifically, the Third Claim for Relief asserts that U.T.’s proposed tender offer absent full disclosure of its voluntary reviews of allegedly “questionable payments” made by U.T. and its subsidiaries would violate Section 14(e) of the Securities Exchange Act of 1934,15 U.S.C. § 78n(e). The Court, with the full consent of the parties, referred this claim to a Special Master by its Order of May 20, 1977. The Court’s review of the Special Master’s Report and ultimate determination of the issues referred are contained in a separate Memorandum Opinion and Order. In order to facilitate an expeditious trial on the merits of the other claims, the Court directed the parties to confer and submit a joint statement of the issues to be tried. On May 25,1977, the parties each submitted their own proposed joint statement. It is clear from both these statements and plaintiff’s representations that all but four claims have been withdrawn. The issues presented by three of the remaining claims are defined in the parties’ statements as follows: FIRST CLAIM FOR RELIEF The issue is whether the effect of United’s acquisition of B&W may be substantially to lessen actual or potential competition in any line of commerce in violation of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18. SECOND CLAIM FOR RELIEF The issue is whether United may proceed with its offer without first obtaining the prior written consent of the Nuclear Regulatory Commission to the transfer of control of B&W’s nuclear licenses pursuant to Section 184 of the Atomic Energy Act, 42 U.S.C. Sec. 2234. FIFTH CLAIM FOR RELIEF The issue is whether United’s proposed disclosure of the matters alleged in the first three causes of action is adequate. The fourth claim is that referred to the Special Master. With regard to the Fifth Claim, the third cause of action alluded to is the questionable payments claim discussed above. Further, this last claim is based on U.T.’s asserted inadequate or misleading disclosure of information regarding alleged antitrust problems, Nuclear Regulatory Commission licenses, and the questionable payments in violation of Section 14(e) of the Securities Exchange Act, 15 U.S.C. § 78n(e). Defendant U.T. has essentially denied all the allegations contained in plaintiff’s claims for relief. U.T. has also filed a counterclaim, which alleges that B&W has made numerous materially false and misleading statements concerning the proposed tender offer to its shareholders and the public in violation of Sections 14(d) and (e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(d) and (e). A permanent injunction barring such further and future violations by B&W is sought. Additionally, U.T. requests relief in the form of a current, complete, and accurate list of B&W shareholders in order that it may communicate with them to correct the alleged misstatements of B&W. III. STANDING Prior to addressing B&W’s claims, the Court finds it appropriate to dispose of U.T.’s argument that B&W lacks standing to prosecute the antitrust claims. Specifically, U.T. argues that plaintiff lacks standing because it has failed to prove that it will be injured “by a violation of the antitrust laws” as required by Section 7. This argument confuses standing with an element of an antitrust claim. As stated by the Sixth Circuit Court of Appeals: “ . . . standing is a preliminary determination ordinarily to be evaluated upon the allegations of the complaint. As a result, a party may make sufficient allegations to demonstrate the necessary standing to sue but fail to prove his case on the merits.” Malamud v. Sinclair Oil Corporation, 521 F.2d 1142, 1150 (1975). Standing exists if a plaintiff alleges injury in fact and if it appears that the interests the plaintiff seeks to protect are arguably within the zone of interests to be protected. Id. at 1151. See also Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970). This two pronged test has been satisfied herein; B&W has standing to sue. Whether it has proven its ease on the merits is an entirely different question. IV. ANTITRUST Section 7 of the Clayton Act proscribes a merger where “in any line of commerce in any section of the country, the effect [thereof] may be substantially to lessen competition . . . .” Mergers are classified for analysis under this section as horizontal, vertical, conglomerate, or product-extension. B&W asserts that each characterization may be applied to the instant proposed acquisition and that under each analysis it would violate Section 7. A. HORIZONTAL Horizontal merger analysis must include discussion of several areas of asserted competition between the parties. Specifically, B&W argues that it competes with U.T. for sales of: 1) electric generation equipment to domestic utilities; 2) marine propulsion systems to commercial and naval purchasers; 3) power generation equipment to non-utility, non-marine industries; . 4) services and construction of power generating systems and plants for utilities; 5) waste incineration/generation equipment; and 6) research and development of power generation equipment. 1. UTILITIES The demand for electricity in this country is constantly rising and no doubt will continue to do so in the foreseeable future. The electric utilities are able to meet this demand today only because years ago provision was made for adequate generation capability. Decisions affecting the sufficiency of our supply of electricity in coming years are being made today. These decisions are based on forecasts of demand for electricity from now through the 1990’s. The long term nature of the decisional process is necessitated by both the long lead time required for the installation of the subject machinery and the long life of such generation equipment. Lead times extend up to ten years and this equipment has a useful life of thirty to forty years. Once the decision to add generation capability is made, an electric utility considers numerous factors in choosing a product to fulfill its needs. Such factors include: the .initial capital cost and capital availability; 'the total estimated lifetime cost of operat- ■ ing the equipment, which includes fuel costs and maintenance; the reliability of the equipment; regulatory and environmental concerns; transmission costs; and lead times for installation. The most important single factor is lifetime operating cost, and fuel costs are the most important element in this calculation. Another consideration of electric utilities in this regard is the proposed function of the equipment. Utilities operate power generation equipment in three general ways: baseload, cycling, and peaking. Baseload equipment is operated virtually continuously; such operation results in a low cost per kilowatt hour. Cycling equipment is operated on a regular or fairly regular basis, but not continuously, because of its higher per kilowatt hour cost. For example, such equipment might be needed daily during hours of high demand and then shut down at night. Peaking equipment is generally used only during hours of maximum demand. Either the limitations of the subject technology or the high operating cost of the equipment act as a barrier to utilization of peaking equipment for base-load or cycling purposes. The potential purpose of the proposed equipment is not an immutable element in a utility’s decisional process. Sometimes, as explained below, the lines between these functions are blurred by the exigencies of circumstance. However, utilities can and do make purchases on the basis of the perceived need in their system for a particular functional classification of generation equipment. Of the factors listed above, one of the more important is lead time. If a utility has correctly forecast future needs and made adequate provision therefor, it will have sufficient time in which to select and install the equipment best suited to its needs. In other words, its choices are broad and the remaining factors exercise their-proper role in the selection process. However, where a utility has incorrectly forecast future demand or for some other reason finds itself confronted with an immediate, unplanned need for generation equipment, the choices are much more limited and a utility may be forced to purchase certain equipment regardless of the dictates of the other factors. The significance of this fact is established when it is recognized that approximately ten years are needed to install a nuclear steam electrical generation plant; that approximately eight years are needed to install a fossil fired steam electrical generation plant; and that only two years or less are needed to install gas turbine generation capability. Utilities actually choose between competing technologies for their power generation requirements. While there are many such technologies available, the commercially available choices are: gas turbine systems; nuclear steam generation systems; fossil fired steam generation systems; conventional hydroelectric systems; pumped storage hydroelectric systems; and, to a lesser extent, diesel engines. Potential future systems include: magnetohydrodynamics, fuel cells, geothermal, solar, nuclear fusion, and nuclear breeder reactors. Only the first five commercially available technologies are relevant today and for the foreseeable future. A fossil fired steam generation system consists primarily of three components. The first is a boiler which produces steam. The steam drives a steam turbine which, in turn, drives an electrical generator which yields electricity. B&W manufactures only the boiler in such a system. These boilers may be fueled by coal, natural gas, or oil. Such systems are each capable of producing many hundreds of megawatts (Mw). Their physical dimensions are quite large. In fact, such systems may be as tall as fifteen stories. As might be expected, such a system is very expensive to install; however, its operating expenses are comparatively low, especially when fueled by coal. Gas turbines are employed in either simple cycle systems or combined cycle systems. A simple cycle system consists essentially of a gas turbine and an electrical generator; the gas turbine combines the function of a boiler and a steam turbine. Each system is capable of producing approximately thirty megawatts; however, utilities often install clusters of such systems. U.T. manufactures only the gas turbine in this system. The purchase price of these systems is comparatively low, but its operating expenses are quite high. A combined cycle system employs a simple cycle gas turbine in conjunction with a waste heat boiler system. The waste heat created by the gas turbine is employed to power a boiler, which in turn creates steam. It is thus a combination of the boiler and gas turbine systems. Nuclear steam generation systems employ controlled nuclear fission to produce steam. The remainder of this system is essentially the same as that for the fossil fired steam system. B&W produces nuclear reactors and related materials. The capital expenditures for such systems are extremely high, but operating expenses are low. The pumped storage hydroelectric system uses excess electric power to pump water from a lower to an upper reservoir. When high power demands are placed on a utility possessing this system, the water is released from the upper reservoir and flows through hydroelectric generators producing electricity. The remaining systems need not be explained. Electric utilities generally employ each of the commercially available technologies in their systems to the extent permitted. However, variations do exist. For example, some utilities have stressed oil fueled systems while others maintain only coal and hydroelectric systems. Unfortunately, the number of available sites for conventional hydroelectric generation systems is practically exhausted and most new equipment in this area is replacement in nature. Significant public opposition to nuclear plants has presented problems to their installation. Environmental concerns have similarly affected utilities’ purchasing decisions regarding coal fired fossil steam systems. Generally, however, economic considerations dictate the choice of generation technology and their utilization. The result is that nuclear steam, fossil steam, and hydroelectric systems are, and in the past have been, generally used only for baseload and/or cycling. Gas turbines are generally used only for peaking. There are exceptions to this rule. Simple cycle gas turbine systems, although comparatively small in electrical output, possess. the physical capability of cycling operation and, in certain extraordinary circumstances, of baseload operation. Such capability is employed, for example, where environmental considerations preclude the installation of more economical preferred systems. While environmental concerns are an element in a utility’s decisional process, rarely have they mandated the installation of gas turbine systems. In view of developments in pollution control equipment and energy concerns, it is likely that simple cycle gas turbine systems will be mandated thereby very rarely in the future. Another circumstance in which utilities purchase and operate simple cycle gas turbines for cycling and/or baseload purposes is where, because of an unexpected increase in demand for electricity or delays in the installation of planned capability installations, an “emergency” situation is created. Simply stated, when a utility needs additional generation capability quickly, only the gas turbine, with its short lead time, is available to satisfy that need in time. This “emergency” situation is the primary reason for purchasing gas turbine systems for other than peaking purposes. Its effects have been demonstrated in gas turbine sales to the present, and will probably continue at reduced levels for the next decade. However, because of the cost inefficiency of a gas turbine system, the utility will so employ it only until a more acceptable generation system, such as fossil or nuclear steam, can be installed. The cost inefficiency of gas turbine systems results from fuel costs. Gas turbine systems are fueled by natural gas or high grade oil distillates. As is common knowledge, the price of oil has risen sharply in recent years and the clear trend is for further increases in the future. While interstate gas prices have remained relatively constant, intrastate gas prices have also risen sharply. Similarly, the outlook for future availability of these fuels for electric power generation is less than certain. Natural gas is now in short supply, and most probably will not be available to utilities in sufficient quantities to merit the future installation of natural gas fueled generation systems. Oil, while more plentiful, faces the prospect of future embargoes and political action designed to preclude its availability to utilities. The twin concerns of escalating oil and natural gas prices and impaired availability render generation systems based on said fuels a risky investment of capital desperately needed elsewhere. The electric utility companies are acutely aware of these problems; they have and are altering their purchasing decisions accordingly. These considerations render uneconomical, either presently or in the foreseeable future, the use of either simple cycle or combined cycle gas turbine systems for use other than peaking. Only coal and nuclear systems, and to a lesser extent hydroelectric systems, represent economically viable alternatives for baseload and/or cycling functions. There is significant research being conducted by numerous corporations into coal gasification and coal liquification. However, this research is not likely to produce a commercially competitive product within at least the next decade. If and when such processes are commercially available, the economic feasibility of simple cycle or combined cycle gas turbines will not be significantly enhanced before at least 1990 or 1995. For example, the higher efficiencies of a combined cycle gas turbine system will be diminished by the use of low BTU coal gas; this reduction when combined with the comparatively high cost of such fuels will essentially preclude the large scale application of this technology for many years hence. Simple cycle gas turbine systems, which do not have the advantage of higher fuel efficiency, are even less likely to expand their function beyond peaking. Gas turbine systems presently being developed or considered will have significantly greater generation capability per unit. Thus, if their operation were economical, they could better be utilized for cycling and/or baseload purposes. However, the market climate has caused U.T. to suspend its development of such a gas turbine, the FT50. In view of both present and future fuel conditions, it is unlikely that even these larger gas turbine systems will obtain significant acceptance by utilities within the foreseeable future for purposes other than peaking. Simply stated, gas turbine systems are purchased and operated by utilities only for peaking, absent extraordinary circumstances. This state of affairs will, most probably, continue into the foreseeable future and the exceptions will probably decline in importance. On the other hand, such technologies as nuclear and fossil steam systems are generally purchased and operated by utilities only for baseload and cycling. With these considerations in mind, meaningful, though limited, statistical analysis may be pursued. There are essentially five indicators which must be examined to grasp the significance of gas turbine technology to the electric utilities. They are: orders; additions to capability by year; total electrical generation capability nationwide; power generated by each technology; and capital expenditures for each technology. Megawatts is the standard unit employed for measuring each of the first four indicators. Each of these indicators provides insight into the problem and each has limitations to its value. None of these indicators is sufficient for analysis alone. Discussion of the strengths and weaknesses of each indicator is necessary to an assessment of their worth. “Orders,” as the name suggests, are purchase orders placed by electric utilities for generation equipment. They thus reflect the market activity for the relevant period of time and, to the extent reliable, they must be considered a prime indicator of market activity. Unfortunately, there is a span of time, often years, between placing an order and production and installation. Orders are occasionally cancelled and although each of the order studies presented professes to correct for cancellations, the wide disparities in the data suggest to the contrary. Further, it appears that different persons may record an order in different years. One observer may record as an order what turns out to be only a tentative agreement. These facts render less than reliable the order statistics presented. At most, general trends may be validly discerned. “Additions” measure additions to generating capability by year. Insofar as this indicator relates to years before 1977, it is quite accurate because the complications resulting from cancellations and the varying definitions of orders are eliminated. Of course, future estimates, as with any indicator, are subject to other considerations which will be discussed below. One disadvantage to an additions analysis is that this indicator reflects market activity occurring years before. For example, an addition of a fossil steam system in 1976 reflects a utility’s choice in approximately 1968, However, an addition to gas turbine capability in the same year reflects market decisions only approximately two years old. These variations, while complicating the analysis process somewhat, provide an opportunity for meaningful analysis. Total electrical generation capability reflects the maximum output of the equipment in place or, in the industry vernacular, “on line.” This indicator therefore contributes a broader perspective as to how utilities “mix” their generation equipment. Of course, since much of the capability measured at any one point in time represents decisions made years before, this indicator only indirectly reflects market activity. The power generated by each technology complements each of the other indicators by showing how utilities employ their capability. However, this data has little relationship with market activity. Capital expenditures measures dollars spent by electric utilities in capital formation. It is valuable only because it tends to reflect the economic worth of the various systems to the utilities. However, for each year reported, such data reflects commitments of prior years and thus is of limited utility in measuring present market conditions. Furthermore, since gas turbine systems cost much less to purchase than other systems, their role is undervalued. Each of these indicators also has another limitation. The integrity of the study and/or reporting mechanism upon which the data is predicated is extremely important in assessing its reliability. The Court has already touched on this problem relating to orders. However, the Court finds that the sources described below for the remaining indicators are generally reasonably reliable. One further qualification must be recognized. Insofar as any of these indicators purport to forecast future demand for the subject generation equipment, a- possibility of error inherently arises. As the utilities know, and as this Court has discovered, forecasting future trends in this industry is a very risky business; assessing forecasters is even more difficult. Each forecast is predicated upon certain assumptions which may or may not prove correct. In any event, based on the evidence presented, the Court concludes that the forecast data presented below comports as closely as possible with the most realistic, and generally the utilities’, expectations of the future. For the purposes of this opinion, and subject to qualifications discussed above, the Court has chosen to discuss the orders data contained in Plaintiff’s Exhibits H-l through H-6. This data was derived generally from certain reports of Kidder Peabody & Co., and from reports of the Association of Edison Illuminating Companies. It measures orders placed by domestic electric utilities for nuclear steam, fossil steam, and gas turbine systems only. While the Court believes that it improperly excludes hydroelectric and pumped storage systems, and therefore exaggerates the importance of gas turbine systems, this omission will not prove relevant. Chart I indicates the orders for these technologies by year and the percentage thereof attributable to gas turbine systems. The parties’ respective shares of this defined market are as depicted in Chart II. This data indicates that gas turbine systems have constituted a significant portion of the orders for the technologies included. It further demonstrates the substantial share of such a market enjoyed by the parties. Yet this raw data must be carefully examined if misjudgments are to be avoided. For example, the first chart demonstrates a marked growth in orders for gas turbine systems in 1969. This phenomena reflects the unexpected demands on utilities’ capabilities, and the resulting “brown outs” and “black outs," experienced in 1968-69. Gas turbine orders then remained relatively steady through 1973 as utilities endeavored to quickly build capability to meet demand. The variations in gas turbine systems’ percentage share of this defined market for these years resulted primarily from changes in the orders placed for the two other technologies. Gas turbine system orders peaked in 1971. The total orders for 71,444 Mw in 1973 were the highest in the reported period. Gas turbine systems enjoyed a 9.3% share of this market, on orders of 6,626 Mw. In 1974, utilities placed the second highest total orders for the reported period. Yet orders for gas turbine systems dropped disproportionately to 2,496 Mw. This drastic decrease may be directly attributed to the 1973-74 oil embargo, and its resulting impact on oil fueled systems such as gas turbines. Yet gas turbine system orders jumped in 1975 to 4,689 Mw, or 22.4% of total orders in the subject market. The gas turbine new orders for that year were appreciably less than the orders plateau of 1969-73, but the percentage share of the market enjoyed by gas turbine systems was the highest for the reporting period. After the oil embargo, electric utilities began a reassessment of their oil system capability. The uncertainty of future oil supplies; ' a decreasing rate of growth of consumer demand for electricity; excess capability, both actual and on order; and capital shortages resulting from limited revenues caused utilities to cancel orders and/or defer new purchases. Therefore orders for fossil and nuclear steam systems tumbled dramatically in 1975 and remained uncharacteristically low in 1976. It appears that utilities are now beginning to place orders at more normal levels. During this “artificial” market, gas turbine systems’ percentage share of this market became exaggerated. The orders placed in 1972, for example, for fossil and nuclear steam were, in 1975, still approximately five to seven years from completion. Yet some utilities found that they had incorrectly forecast their individual systems’ needs for generation equipment or that unexpected delays in the installation of steam systems left gaps in their systems’ capability versus projected requirements until the steam systems’ installation. Thus “stop gap” ordering of gas turbine systems occurred. This ordering did not replace steam systems; it merely enabled the utilities to meet demand until these preferred systems could be on line. New capability additions by year is the second indicator to be discussed. Additions analysis will proceed in two parts. The first will be a historical examination and the second will concentrate on planned future additions. Chart III shows actual additions to capability by technology and year. The percentage shares of the total are also given. Before discussing this chart, it must first be noted that the 1972 addition of 9,493 Mw of internal combustion systems was most unusual and is neither repeated during the years reported nor is it likely to be repeated in the future. Chart III indicates both the dominance of fossil steam systems in additions for the reported years and the significance of gas turbine systems. The only comments necessary are to note the dramatic drop in additions of gas turbine, fossil and nuclear steam systems in 1976; and the diminishing role of gas turbine systems after 1974. Comparison of Charts I and III suggests significant delays and/or cancellations of orders. First, considering the lead times necessary for the addition of fossil and nuclear steam systems, the 1976 additions for these systems are unusually low. Second, the total installation for each year in Chart III is significantly lower than total orders, insofar as indicated, for the years which would be expected to have contributed to on line capacity in 1972-76. A comparison of the electric utilities’ planned future additions for fossil steam systems to actual additions demonstrates significant disparities, commencing about 1967 or 1968. For every year thereafter actual additions were significantly,, lower than planned two or three years before. Not coincidentally, planned and actual additions of gas turbine systems jumped accordingly. When the long lead times for nuclear and fossil steam systems are recalled, and since therefore estimates of additions two or three years later are made while the actual construction process is presumably well advanced, this slippage must primarily be ascribed to delays as opposed to cancellations. This data also infers that gas turbine systems were being installed as a stop gap measure until the steam systems could be on line. This inference is strengthened by examination of the utilities’ planned future additions in years past for gas turbine systems only. For example, as of January, 1969, electric utilities planned the following gas turbine system additions: 1969 1970 1971 4,107 Mw 2,261 Mw 256 Mw Assuming approximately a two year lead time for such additions, the planned additions for 1969 and 1970 most probably were already ordered or definitely planned. The marked reduction in planned additions for 1971 shows that the utilities’ demand for gas turbine systems was not uniform, and it suggests that the perceived need for such systems in 1969 and 1970 was artificially high. Chart IV develops this planned additions analysis for gas turbine systems from 1969 through January 1977. Examination of this chart reveals a pattern of diminished planned additions for gas turbines beyond the two year lead time. It also reveals the diminishing role of gas turbine systems. When it is recognized that the slippage problem for installation of steam systems began improving slightly around 1974; and that utilities were generally finding that their actual and ordered capabilities were sufficient to meet consumer demand from 1974 through 1976, this diminished role is consistent with the gas turbine’s stop gap and peaking role. Chart IV also demonstrates that gas turbine systems are continuing to diminish in utilities’ plans for 1977 and thereafter. For example, gas turbine systems were, as of January, 1977, planned to constitute 5.94% of additions in 1977; 5.46% of additions in 1978; 4.97% of additions in 1979; and 3.64% of additions for 1980 and after. While these percentages are still slightly higher than those for a “pure” peaking system, they are much more in line with such figures. The difference is merely reflective of the now more limited stop gap role. The next indicators are installed generation capability and electricity generated by each technology. According to the National Electric Reliability Council, the total United States’ installed electric generation capability as of December 31,1976 was 503,-302 Mw. The capability of installed simply cycle gas turbine systems was 41,807 Mw, which represented 8.3% of total capability. Combined cycle gas turbine systems were 3,901 Mw of capability as of that date, which represented 0.775% of the total installed capability. Together the simple and combined gas turbine systems represented approximately 9.09% of total generation capability. Yet while gas turbine systems hold a significant share of total generation capability, their actual output of electricity in 1976 was de minimus. The simple cycle gas turbine systems produced only approximately 0.99% of the electricity generated in 1976. Combined cycle systems produced only approximately 0.64% of said total. Together these gas turbine systems accounted for only about 1.63% of total generation. Obviously gas turbine systems are not being used to their full capability. The National Electric Reliability Council projects that in 1985 gas turbine systems, both simple and combined, will constitute an even smaller percentage of both capability and generation. This low utilization rate suggests that gas turbine systems are almost uniformly used for peaking only. The stop-gap capability was primarily kept in reserve. The final indicator to be discussed is capital expenditures. This is the least important of the five indicators, but it does demonstrate to some extent the relative economic value to electric utilities of the various systems. Chart V demonstrates capital expenditures in thousands of dollars for the years reported. CHART V SYSTEM Fossil Steam Gas Turbine Nuclear Steam Hydro- Pumped Electr ic Storage 1972 4,825,518 512,705 3,589,382 407,364 365,272 1973 5,611,852 565,323 3,803,832 603,878 296,757 1974 6,454,715 631,544 4,689 ,689 496,965 200,139 1975 6,526,508 452,846 5,166,676 387,634 171,814 1976 7,953,701 274,274 7,140,888 536,387 260,250 Analysis of this chart must begin by again observing that the initial cost of gas turbine systems is significantly lower than that of fossil and nuclear steam systems. While this might suggest that gas turbine systems would be preferred over steam systems, the facts are to the contrary as demonstrated by analyses of orders and additions. Chart V essentially demonstrates the relative insignificance of gas turbine systems for the years reported. The dollar expenditures for gas turbine systems most closely approximated those for pumped storage systems. The statistical analysis of all five indicators provides cogent support for the Court’s findings, but it is by no means the sole basis therefor. Statistics cannot be validly interpreted in a vacuum, and the testimony and other exhibits have provided the Court with the necessary information to interpret the statistical evidence. Section 7 of the Clayton Act proscribes mergers which may substantially lessen competition in “any line of commerce.” Thus a “[d]etermination of the relevant market is a necessary predicate to a finding of a violation of the Clayton Act . .” United States v. E. I. Du pont de Nemours & Co., 353 U.S. 586, 593, 77 S.Ct. 872, 877, 1 L.Ed.2d 1057 (1957). See also Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962). The parties agree that the relevant geographic market is the United States of America. The Court concurs. However, no such unanimity'of opinion exists as to the product market. B&W argues that the product market consists of electric generation systems powered by gas turbines, fossil boilers, and nuclear reactors. U.T. argues to the contrary. It is clear to the Court that each of these technologies can be considered to be a separate line of commerce. Whether they also fall within the same line of commerce is the issue which is determinative of this claim. The “outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.” Brown Shoe Co. v. United States, 370 U.S. at 325, 82 S.Ct. at 1523-24 (footnote omitted). However, it must be remembered that the touchstone of the inquiry, in fact the purpose of the examination of the above mentioned factors, is “recogni[tion of] competition where, in fact, competition exists.” Brown Shoe Co. v. United States, 370 U.S. at 326, 82 S.Ct. at 1524; United States v. Continental Can Co., 378 U.S. 441, 453, 84 S.Ct. 1738, 1745, 12 L.Ed.2d 953 (1964). There is no doubt that, for example, both fossil steam and gas turbine systems produce electricity. In that sense these systems are substitutes for each other. However, it is also clear that gasoline engines, windmills, fuel cells, and solar energy collectors can generate electricity; yet none of these systems are presently commercially feasible alternatives for electric generation by utilities and must therefore be excluded from consideration. The point of this illustration is that the mere fact of physical capability to produce electricity is insufficient to establish competition or reasonable interchangeability of use. Economic limitations must be recognized in defining a product market. To paraphrase Mr. Justice Douglas in his opinion for the majority in United States v. Aluminum Company of America, 377 U.S. 271, 276, 84 S.Ct. 1283, 1287, 12 L.Ed.2d 314 (1964), “. . .to ignore [economics] in determining the relevant line of commerce is to ignore the single, most important, practical factor in the business.” ' Economic considerations raise a potent barrier to substitution of gas turbine systems for fossil and nuclear steam systems or vice versa. Gas turbine systems are substantially more economical to operate for peaking purposes than either nuclear or fossil steam. Conversely, nuclear and fossil steam are substantially more economical to operate for cycling and baseload purposes than gas turbine systems. Utilities and the manufacturers of the component parts of these systems recognize this simple fact. The cost disparities are so substantial that utilities purchase gas turbine systems only for peaking purposes unless there is unanticipated demand for electricity, delay in installation of other systems or if non-economic considerations exclude other systems. Examples of the first exception include “brown-outs” or “black-outs” experienced by consumers in the late 1960’s. As a result thereof, utilities literally scrambled to install additional capability; only gas turbines could be installed within the requisite time period. Similarly, the considerable delays in installation of nuclear and fossil steam systems experienced by utilities in the early 1970’s created a “gap” in their generation reserves requiring immediate capability additions. Finally, gas turbine systems have been installed where, for example, environmental concerns and the lack of adequate alternative technology to meet said concerns, precluded consideration of other systems. The unanticipated demand for electricity and the delay in installation of other systems do not constitute evidence of reasonable interchangeability. First, the “emergency” characterization belies consideration of it as a “reasonable” substitute. Second and most important, the evidence does not establish that the installation of gas turbines caused utilities, to any significant degree, to defer or decline to place orders for nuclear or fossil steam systems. Nor do non-economic considerations evidence reasonable interchangeability in the circumstances of this case. It is established that operating cost is the single most important factor in both the selection and operation of electric generation equipment. Suspension of this fact occurs only under the most extraordinary circumstances; it has only rarely happened in the past and the probabilities of significant repetition are quite remote. In short, the clear superiority of fossil and nuclear steam systems over gas turbine systems for baseload and cycling purposes renders gas turbines akin to diesel engines, for example, for such purposes. That is, diesel and gas turbine systems may be technologically feasible alternatives for at least cycling purposes, but they do not represent commercially viable alternatives for either cycling or baseload operations. Similarly, both technological and economic limitations effectively preclude utilization of nuclear or fossil steam systems for peaking. For example, fossil steam boilers take hours to build up pressure and hours to cool off. Thus their use for short periods of time is wasteful and commercially not acceptable. These barriers are recognized by the utilities. There is either a zero or negative cross-elasticity of demand. Thus at the present time, and most probably for the foreseeable future, gas turbine systems do not and will not compete with fossil or nuclear steam systems. They are not in the same market. 2. MARINE Marine vessels vary enormously in size, function, and purpose. There are, for example, cargo carriers, passenger carriers, tankers, super tankers, coastal patrol vessels, and naval vessels of seemingly every description. Yet there are only four principal propulsion systems for marine purposes: diesel engines, fossil steam boiler systems, nuclear steam systems, and gas turbine systems. Only nuclear systems are not fueled by petroleum products. B&W manufactures components for only the fossil and nuclear steam systems. Its components are designed and engineered for vessels with at least 10,000 shaft horsepower (shp). Therefore the Court shall limit its discussions to vessels meeting this specification. Although not without qualification, marine vessels are generally recognized as falling within one of two major classifications: commercial and naval. This distinction is well justified by the distinct purposes of both the vessels and their propulsion systems. Commercial vessels are primarily designed and operated to transport people and goods. Their propulsion systems must operate economically and large variations in speed are generally not required. The dominant propulsion system for commercial vessels constructed or ordered within the last decade internationally is the diesel engine. Its reliability and fuel economy, including its ability to burn low grade petroleum products, account for this clear preference in the international market. Within the United States, however, fossil steam systems predominate. This position is deteriorating and results principally from governmental action and the lack of a domestic supplier of large, high shaft horsepower “low speed” diesel systems. As domestic manufacturers develop and begin marketing low speed diesel systems, a process which is presently underway, orders for fossil steam systems will begin to significantly decline due to the diesel systems’ economic superiority. Nuclear steam systems are simply impractical for propelling commercial vessels. Design and engineering expenses for such systems are very high. This fact plus their relatively high operating expense effectively preclude their installation in commercial vessels either presently or in the foreseeable future. Gas turbine systems are similarly situated. Although some commercial ships have been ordered and constructed with gas turbine propulsion systems, such vessels are, generally speaking, economic failures. Though data is scarce, the Court finds that maintenance expense and fuel costs preclude the utilization of gas turbine systems in commercial vessels. Commercial shipping companies are well aware of this simple fact, for no orders for gas turbine systems have been placed for commercial vessels in recent years. Naval vessels must be further classified as auxiliary or combatant. Auxiliary vessels are essentially modified commercial ships and their purposes and propulsion requirements are essentially the same as for commercial vessels. Combat ships are in a vastly different category. While economy of operation is, of course, important, its impact is circumscribed by the peculiar functions of combat vessels. Cruising range and high performance are crucial elements of an effective war ship. Naval auxiliary ships have essentially the same requirements for propulsion systems as do commercial vessels. Therefore, only diesel or fossil steam systems are, or will be in the foreseeable future, installed for propulsion purposes. A markedly different situation exists for naval surface combat vessels. Gas turbine and nuclear steam systems are the preferred propulsion systems. For example, all recent orders in this class by the navies of the United States and the United Kingdom have been for one or the other of these systems. This ascendancy is a comparatively recent development. After World War II, fossil steam systems dominated at least as to U. S. Navy surface combat vessels, and B&W dominated the manufacture and/or design of such systems. However, in the late 1940’s, B&W chose to concentrate its efforts as to marine propulsion systems solely in the United States market. As a result of this decision, B&W is not significant in the foreign market. Excluding for the moment reference to nuclear systems, fossil steam systems continued unchallenged until the early to mid 1960’s, when various governments began experimenting with gas turbine systems. As a result of these tests, gas turbine systems have apparently become a very significant factor in naval surface combat vessel orders. After testing both U.T.’s FT4 gas turbine and General Electric Corporation’s LM2500 gas turbine, the U. S. Navy selected G.E.’s LM2500 for the Spruance class destroyers in Fiscal Year 1970. For each subsequent new class of ships, the Navy has chosen the gas turbine system over the fossil steam system. While the U. S. Navy has not expressly stated that all future surface combat ships will be propelled by gas turbine or nuclear systems, its actions in the past and proposals for the future demonstrate that fossil steam systems are no longer seriously considered for new combat vessels. Stated simply, absent major technological improvements, fossil steam systems are obsolete for new classes of naval surface combat vessels. No such technological improvements, or a reasonable likelihood thereof, have been proven by B&W. B&W has apparently recognized the ascendancy of gas turbines over boiler systems in surface combat ships. After losing contracts for the Spruance class of ships, B&W failed to maintain its capabilities to install boiler systems in both combat and auxiliary vessels. Only recently has it begun the arduous and expensive process of preparing itself to bid on naval vessel contracts for fossil steam systems. However, B&W still is quite active in supplying components for nuclear propulsion systems to G.E. or Westinghouse and, through them, to the U. S. Navy. Nuclear propulsion systems are generally installed in only the largest combat vessels. Although not without dissent, the policy of the United States has been, and presently continues to be, to install only nuclear systems in extremely large vessels such as cruisers and aircraft carriers. This policy has been enacted into law by Congress. See Title VIII of the Department of Defense Appropriation Authorization Act of 1975, 10 U.S.C. § 7291 note. The power ranges for nuclear systems extend from approximately 60,000 shp to over 250,000 shp. Gas turbines are presently capable of producing 20,000 to 25,000 shp per engine. The largest gas turbine system installed in naval surface ships, the Spruance class vessels, produces approximately 80,000 shp per ship. It is apparent that, at present, the area of overlap for these two systems is comparatively narrow. It is, in fact, even less significant than these figures would suggest. The high cost of nuclear systems renders them not “preferred” at the lower power ranges for ships presently being constructed or contemplated. For example, considering surface combat ships authorized in the Fiscal Year 1970 program and thereafter, the smallest nuclear powered vessels are rated at 120,000 shp per ship. These were the Virginia class (CGN) Guided Missile Cruisers. However, it must be recognized that nuclear systems producing 60,000 shp have been installed in the past in surface combat vessels. Thus far all thirty of the planned Spruance class destroyers have been authorized by Congress. Additionally, the Navy is in the process of adding a large number of Guided Missile Frigates, Oliver Hazard Perry class, to the fleet. The lead ship, the U.S.S. Oliver Hazard Perry (PF67) was authorized in the Fiscal Year 1973 program. Nine more have been authorized and funded. The Navy hopes to build approximately forty additional ships in this class. These ships are propelled by G.E.’s LM2500 gas turbines yielding about 40,000 shp per ship. The only other new class of non-nuclear powered surface combat ship authorized in Fiscal Year 1970 or thereafter is Patrol Combatants-Missile. The lead ship is the U.S.S. Pegasus (PHM 1). These are very small ships, consisting of only 221 displacement tons. However, total shaft horsepower is over 18,000 per ship. Propulsion when hydrofoil born is by one 18,000 shp gas turbine manufactured by G.E. Standard propulsion is by two diesel engines. Suspension of the second ship authorized in this class renders suspect the future of this class of ships. The design of these ships apparently precluded the installation of fossil or nuclear steam systems. One additional class of ships must be mentioned. The U. S. Coast Guard has ordered and commissioned two ice breakers, the Polar Star (WAGB10) and the Polar Sea (WAGB11). These two ships also possess combined propulsion systems. A diesel-electric system producing 18,000 shp per ship operates for normal cruising and three gas turbines producing a total of 60,000 shp per ship are employed for maximum power situations. The gas turbines were manufactured by U.T.’s Pratt & Whitney Aircraft Group. These ships, which are not fighting ships and which were authorized in the Fiscal Year 1971 and 1973 budgets, represent U.T.’s sole entry into the “military” marine market for surface combat ships authorized in and after Fiscal Year 1970. In fact, U.T.’s last order for a gas turbine for any military vessel was received late in 1973. U.T. is not now classified as an acceptable supplier of gas turbines to the Navy. It maintains no organized, centralized sales force for this product. Despite the fact that manufacturers can and do bid for contracts to install their propulsion systems even if they do not obtain the contract for the lead ship, U.T. has chosen'not to compete with G.E. for the additional vessels in the Spruance and Perry classes. U.T. has received no orders for its gas turbines for naval surface combat ships authorized in or after Fiscal Year 1970. Even counting the two Polar class ships in this category, these two sales represent only about 2% of the total shaft horsepower for the ships authorized, and 0% of the orders placed in or after 1974. U.T. is not now competing in this market with the FT4. U.T.’s prospects for future naval sales of gas turbines are wholly dependent upon the development of new gas turbines. U.T. is presently under contract, awarded in 1973 by the U. S. Navy, to develop a gas turbine system capable of producing approximately 30,000 shp. This engine is to be completed in 1978. An additional contract was, at least in 1975 or 1976, planned by the Navy to conduct tests of this engine, the FT9, in a commercial ship during 1978-79. If these tests are successful, the FT9 could achieve service approval from the Navy in 1980. No substantial evidence was presented regarding the current state of development of the FT9 or as to the actual likelihood that the Navy will award the second contract to U.T. If this schedule is maintained and if the tests are successful, U.T. will consider entering the market for gas turbine propulsion systems. The likelihood that U.T. will compete in the future with this product is far less than certain. Simply stated, U.T. will sell gas turbine marine propulsion systems in the future if: (1) the FT9 proves technologically successful and achieves service approval; (2) a market for the larger gas turbines develops; and (3) if it appears reasonably likely that U.T. will obtain a sufficient share of the market to justify the expenditure of funds which entry into the market will require. Fortunately for U.T., its decision to attempt to market the FT9 is not required until sometime in the future when there will be answers to a number of the subsidiary questions. The Court, however, must assess the probabilities on the basis of the present record. As noted above, the record contains no concrete evidence regarding the current stage of development of the FT9; nor does it contain reasonably current assessments of the likelihood of its successful development. Therefore, on this record, a determination as to the likelihood of U.T.’s developing a marketable 30,000 shp gas turbine system would be mere speculation. Similarly, assuming that the FT9 will be successfully developed, the record contains no reasonably current assessment as to when such an event is likely to occur. Indeed, if the FT9 development program is delayed for a significant period of time, U.T. may lose any opportunities it might have to enter any market which may develop. Assuming that the FT9 obtains service approval from the Navy within a reasonable time, the next question is whether there will be a market for such a gas turbine system. Market opportunities appear to reasonably exist within the foreseeable future only as to certain proposed classes of ships. Specifically, these are the Surface Effect Ship (SES), the ships involved in the AEGIS program, the VSTOL Support Ship (VSS), and possibly larger hydrofoil or other experimental vessels. B&W has not proven any reasonable probability that a successful FT9 would be employed in any existing class of ships. SES represents a new and experimental ship design. It is designed for extremely high speed surface travel. It appears that current plans call for the first ship to be about 2,800 displacement tons and to be propelled by approximately 60,000 shp gas turbine engines. A reliable, durable, and economical 30,000 shp gas turbine engine would probably propel such a ship. However, a lead ship has not yet been authorized by Congress. In view of the extremely high development costs for such a ship and the serious questioning within the Department of Defense regarding the advisability of such a class of ships, the Court cannot find a reasonable likelihood that said ships will be authorized; nor can the Court reasonably project the number of ships which would be built if this class is authorized. In any event, it appears that the SES could not, in either its present or any reasonably conceivable form, accommodate either a nuclear or fossil steam propulsion system. The Aegis system ships currently being considered are the Nuclear Powered Strike Cruisers (CSGN) and the Guided Missile Destroyer (DDG). It appears that the CSGN, if authorized by Congress, would both have an offensive capability and contain the complex Aegis air defense system; it would be nuclear powered. The DDG ships would be smaller and similarly fitted with the Aegis defense capability. The Navy would like a number of each class of ship. Final decision as to the development of either or both of these ships rests with Congress. As evidenced by Title VIII of the Department of Defense Appropriation Authorization Act of 1975, 10 U.S.C. § 7291 note, a considerable number of our elected representatives favor nuclear propelled ships. Others favor conventionally powere