Foremost Dairies, Inc.

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IN THE MATTER OF FORE:vroST DAIRIES, IKC.

ORDER, ETC" L\ REGARD TO THE ALLEGED VIOLATION OF THE :FEDERAL TRADE COMl\IISSION ACT AXD SEC. 7 OF 'l'H1j CL.A.YTON ACT Docket 6495. Gompla-int, Jan. 1.956-Decision, Apr. 30, 19G2* Order requiring the fourth largest dairy firm in the country to sell ten industry concerns it flcqnired in 1952, 1953, and 1955, which acquisitions might substantially lessen competition or tend to create a monopoly, in violation of Sec. 7 of the Clayton Act.

COMPLAI The Federal Trade COllllnission, having reason to be1ieYB that the party respondent named in the caption hereof and hereinafter marc particularly designated a;ncl described, has violated and is now violating the provisions of Section 5 'of the Federal Trade C0l11nission Act (D. C. Title 15, Sec. 45) and Section 7 of the Clayton Act (D. Title 15, Sec. 18) as amended and approved December 29 1950, and it appearing to the Commission that a proceeding by it in respect thereof would be in the pubhc interest, hereby issues its complaint clmrging as follows:

PARGRAPH 1. Respondent, Foremost Dairies, Inc., hereinafter refen' ed to as "Foremost", now and at all times relevant herein, is a corparatian organized and existing under the laws of the State of K ew York with its main and principal offce located at 2903 College Street, .r acksonville, F1a.

PAR, 2. Foremost is now and at a1l tilnes relevant herein has been engaged in the purchase, processing and distribution of a diversified line of dairy products. where used herein the term " dairy products shall include one or any nmnber of the following products: milk eream, ice crean"!, cheese, butter, eggs, calllecl fresh milk, and evaporated milk. Foremost distributes the various dairy products to retail consumers and to' stores, restaurants, hotels and other Inisce1laneous outlets. Prior to and at the time of the acquisitions herein, Foremost purchased, processed and distributed dairy products in commerce, as commerce" is defined in the Cla-yton Act and the Federal Tro-de Commission Act, a,nc1 still does, PAIL 3. Foremost was initially organized in October 1931 under the laws of the State of Delaware and in 1949 Foremost was merged with '" As modified ::.Jay 15 , 1962.

FOREMOST DAIRIES, INC. 945 944 Complaint and into :Maxson Food System, Inc., a :I ew York corporation, the continuing corporation bearing the name Foremost Da-iries, Inc. In the period from 1932 to 1950, inelusive, prior to the time Section 7 of the Clayton Act was amended, Foremost acquired by purchase the stock or assets of 38 separate dairy product concerns with plant locations or equipment located in '17 communities in the States of Florida Texas, South Carolina, Alabama, Georgia, Tennessee, Louisiana, New York, Pennsylvania, ,md Korth Carolimt. At the expiration of the first year of operation of Forenlost in 1932, said company had gross sales of approximately $1 000 000 and for the year 1950 Foremost had gross sales of approximately $52 000 000, with net sales of approximately $48 000 000.

PAR. 4. In a series of transa,actions beginning in January 1951 , subsequent to the time Section 7 of the Clayton Act was amended, Foremost has acquired the stock or assets of the following-'named corporations engaged in the purchase, Hmnufactllro or processing and distribution of dairy products. All the acquired corporations at the time of the said acquisltions, in tho regular course of business, either purchased processed or distributed dairy products throughout the various stales of the United States or purchased and received shipments of dairy products and related eql1iprIlcnt from manufacturers and ppocessors located throughout thc United States. All the acquired corporations prior to alnd at the time of the acquisitions, purchased, processed or distributed dairy products in commerce, as "cOlIDnerce" is defined in the Clayton Aet and the Federal Trade Commission Act. Such acquisitions include the following:

(1) In January 1951 Foremost acquired a dairy plant formerly owned by 1\rs. Tuckers J!'oods, Inc., a Delaware corporation, located at Sherman, Tex. (2) In February 1951 Foremost acquired Central Dairies, Inc., a South Carolina corporation, with nwin offce located at Columbia, S. (3) In ::lay 1951 Foremost acquired Sunshine Dairy Products, Inc. , a J!'florida corporation, with main offce located at Gainesvile, Fla.; (4) In June 1951 Foremost acquired Hoyal Dairy Products, a Florida cor. poration, with main offce located at Tampa, Fla. (5) In October 1951 Foremost acquired Lauren s Pasteurizing Plant, Inc., a South Carolina corporation, with main offce located at Lam'ens, S. (6) In February 1952 Foremost acquired International Dairy Supply Co., a Kevada corporation, with main offce located at Oakland, Calif. (7) In February 1952 Foremost acquired International Dairy Engineering Company, a California corporation, with main offce located at Oakland, Calif. (8) In February 1952 Foremost acquired Diamond Dairy, Inc., a Nevada corporation, with main offce located at Oakland, Calif. (9) In February 1952 Foremost acquired Campos Dairy Products, Ltd. , a Hawaii corporation, with main offce located at Lanikai, Hawaii; (10) In March 1952 Foremost acquired Gunn Ice Cream Co., a Florida corporation, with main offce located at Pensacola, Fla. , :

946 FEDERAL TRADE COM nSSIOX DECISIOXS Complaint 60 F.

(11) In .?lal'cl1 1952 Foremost acquired Grahurn s Dairy, Inc. a Floriaa corvortatiou, with main offce Ioc.tited at Pelll1suco (.?liami), Fla. (12) In :'Iarch 1952 Foremost acquired Acme Dairies, Inc., a Florida corporation, with main offce located at Tallahassee, l"la. ; (13 In June 1952 Foremost Hcquired Taylors Home :\Iade Ice Cream Co. , a Texas corporation, with main offce located at Ft. Worth, Tex.; (14) In July 1952 Foremost acquired The Pbenix Dairy, a Texas corporation with main offce located at HOllston, Tex. ; (1;3) In August 1952. Forcmost acquired !ves Dairy Company, Inc., a Flotil1a corpora t.ion, with main offce Ioca ted a t Miami, Fla. ; (16) 1n September ID;)2 Foremost acquired Tennessee Dairies, Inc., a Texas corport/rion. with main offce located at Dallas, Tex. (17) In September 1952 Foremost acquired Southern Maid, Inc., a Virginia corporation, wit.h main offce located at Bristol, Va. (18) In September 1952 Foremost acquired 'Welch :Milk Company, a ,fest Virgi11ia corporation, with main offce located at 'Vclch, 'Yo Va. (19) In October 1052 Foremost acquired Bridgeman-Hussell Co., a Minnesota corporation, with main offce located at Duluth, Minn. Foremost also acquired the \wholly-owned subsidiaries of Bridgeman-Russell Co.

(a) Dairyland Creamery Co. , a South Dakota corporation, with main offce located at Sioux J3'alls, S, Dak.;

(b) )'Iinot Creamery Co. , a Korth Dakota corporation, with main offce located at )'linot . Dak.

(c) Purity Dairy Co., a :'ort11 Dakota corporation, with main offce located at ::Iandan. X. Dak. ; aTIl (d) United Dairies, Inc. , a :\Iiunesota corporation, with main offce lo('ated nt D111uth, )'1i1m.

(20) In December 1952 Foremost acquired R. A. Shuey Creamery, a c,ada l'orporation. with main offce located at Oakland, Calif. (21) In :'lay 1053 Foremost acquirefl Dairymen s :\lilk Co., Ltd. , a California corporation, ,,,ith main offce located at San Fnllcisco, Calif. :t"'orewost also acquired the wholly-owned subsidiar;r, Dairymaid Creameries Ltd., a California corporation, with main offce located at Hughson, Calif. (22) In )'Iay 1953 ForenlO!St. acquired Banner Dairies, Inc., a Texas corporation. with main offce located at Oakland. Calif. ; J.' oremost als-o acquired 1'h'e affliatetl holding companies which Are not engaged in prodllciion but merely lease property to Banner. (:23) In .July 10;38 Foremost acquired ScJmeidel's Crcamery, Inc.. D. Florida e'orpnration. ,,,ith main offce located at Eustis, Fla. (24) In October 19:)3 Pm-Cllost acquired Old HUlHlrec1 , 111e'., a Delaware Ol'lIoratioH. with main offce J()l'l1tec1 at Soujl1be1' , COllll. (2,')) In Februllry 1!).34 Foremost Hl'fJuirecl Golden States, Ltd.. a Delaware col' pon1tion. 'THh 1111in offce lOl'ated lelt Oakland, Calif. (2G) In OctolJer 19:14 Foremost aeQnired American Dairies. Tnc.. a :'Jarylanc1 corporation. ".ith main offce Jo('ated at Kansas City, :'10. FOl"'JlJOst also nCflulred the WllOll;\"-ownec1 subsidiaries of American Dairies Inc.

(n) )'l('1'i(len Creamery Company, a Missouri corporation, with main offce locntec1 at Kansas City, ::10.

FOREMOST DAIRIES, INC. 947 Complaint (b) Merideu Creamery Co. , Inc., a Kansas Corporation, with main offce located at Hutchinson, Kans.

(c) American Butter Company, Inc., a Missomi corporation, with main offce located at Kansas City, Mo.

Cd) De Coursey Creamery Company, a Kansas l'orporation, with main offce located at Kansas City, Kans.

(e) Patton Creamery Company, a Missouri corporation, with main offce located at Springfield, Mo. ;

(f) Arctic Dairy Products Company, a :\Iissouri corporation, with main offce located at Kansas City, Mo.

(g) Carlin Crcamery Company, a District of Columbia corporation, with main offce located at Washington, D.

(h) "' m. F. I-uhn & Co., a Delaware corporation, with main offce located at Washington, D.

(i) '.rhe Aines Farm Dairy Company, a l\Iissouri corporation, with main offce located a.t Kansas City, Mo.

(j) Community Dairy Products Company, a )'lissouri corporation, with main offce located at Joplin, Mo.

(k) Community Creamery Company, an Arkansas corporation, with main offce located at Ozark, Ark.

0) Ozark Creamery Co. , Inc., an Arkansas corporation, with main offce located at Ozark, Ark.

(m) Pratt Dairy Products Co., a Kansas corporation, with main offce located at Pratt, Kans.

(n) Taste:mark Foous, Inc., a ),lissouri corporation, with main offce located at Kansas City, Mo. ;

(0) Tastemark Dairy Co., a Maryland corporation, ,vitll main offce located at raragould, Ark.

(27) In ),iarch 19;:5 Foremost acquired Blue 1\1oon Foods, Inc. , a Dela'vare corporaUon, with main offce located at Thorp, '\Vis. Foremost also acquired the wholly-owned ,subsidiary, June Dairy Products Company, a ew York corporation, with main offce located at New York, N. (2R) In August 1855 Foremost acquired 1'11iladelphia Dairy Products Co., Inc. incorporated in the COlllIllonwealth of Pennsylvania, with main offce located at Philadelphia, Pa. ;

Foremo-st also acquired the wholly-owned subsidiaries of Philadelphia Dairy Products Co., Inc.

(a) Janssen Dairy Co. Inc., a New Jersey corporation, with main offce locaterl at New York, X.

(b) 'Woodlawn Farm Company, a Penns;dyania corporation, with main offce located at Philadelphia, Pa.

(c) Harrington Dairy Co. , a Pennsylvania corporation, with main offce located a.t Philadelphia, Pa.

(d) IUchmond Dairy Company, a Virginia corporatioIl, with main offce located at Ricl)ilOnd, Va.

(29) In September 1955 Foremost acquired "'estern Condemdng COIDIJany, a California corporation, ,,,ith main offce located at Appelton, 'Vis. (30) In October 1955 Foremost acquired Flo-richt Dairies Company, a Flr)ridfl corporation, with main offce located at Miami, Fla. 719-603--64-- 948 FEDERAL TRADE CO),MISSION DECISJONS Complaint 60 F.

PAR. 5. As a direct result of the above listed acquisitions, Foremost is now one or the four largest purchasers, processors and clistributors of dairy products in the united States and has increased its gross sales from approximately $52 500 000 and net sales of approximately $48 000 000 in 1950 to gross sales of approximately $375 000 000 and net sales of approximately $295 000 000 for the year 1954. In 1954 63 percent of Foremost's sales were derivcd from sales of fluid milk and cream; 20 percent or I, oremost' s sales resulteel from sales of ice cream; and the remaining 17 percent of Foremost's sales represented sales of a wiele varieiy or miscellaneous products. The operations of Foremost are divided into eight divisions at the present time and currently include the purchase, processing and distribution or dairy products in 30 states and IIft\ntii, PAR. 6. In addition to Foremost's acquisitions or corporations here inbefore listeel, Foremost also acquired nine additional dairy products concerns in If)51 and 1952 located in the State of Florida which were individually owned and were not. corporations. PAR. 7. The constant and systematic elimination of actual and potential competitors by means of the acquisitions described in paragraphs -: and G hereof are all to the prejudice and injury of the public and constitute unfair methods of competition and unfair acts and practices within the intent and me-aning of Section 5 of the Federal Trade Commission Act.

PAR. 8. Foremost has violated Section 7 of the Clayton Act, as amended, in that the acquisition of the stock or assets of the corporations listed in paragraph 4 hereof either indivichml1y or collectively may have the effect of substantially lessening competition or tending to create a monopoly in the following ways, among others; (a) Actual and potential competition between Foremost and the acquired corporations in the purchase, processing or distribution of dairy products Jlas been or may be eliminated; (b) Actual and potential competition generally in the purchase processing or distribution of dairy products may be substantially lessened;

(c) The acquired corporations have been or may be permanently eliminated as an independent competitive factor in the purchase processing or distribution of chliry products; (d) The acquisitions by Foremost may enha.nce Foremost' s com petitive a.dvanbtge in the purcha, , processing or dist.ribution of dairy products to the detriment of actual1 or potentjal competit.ion; (e.) Competitive pllrchaseTs, processors or distribut.ors of dairy products may be foreclosed from a subsia,ntial segment of the market _ g. __ _______ _ FOHEMOS ' DAIRIES , INC. 949 944 Initial Decision in that respondent has eliminated the acquired corporations as poten tial suppliers or customers;

(f) Industry-wide concentration of the purchase, processing or distribution of dairy products may be increased; (g) Foremost's competitive advantage over other purchasers, processors or distributors of dairy products may be enhanced to the detriment of actual and potential competition; (h) The acquisitions by Foremost increased the concentration in the purchase, processing or distribution of dairy products and has eliminated a nwnber of independent small business concerns from the industry.

PAIL a. The foregoing acquisitions, acts and practices of respondent as hereinbefore alleged and set forth, constitute a violation of Section 5 of the Federal Trade Commission Act (D. G. Title 15, Sec. 45) and Section 7 of the Clayton Act (D. C. Title 15, Sec. 18) as amended and approved December 29 1950.

ilb' . BM'1WTrll1I. TI illiamBOll, ill-I'. Ray1Jwnd L. Hays and ilfr. Alan R. Lyness for the Commission.

Milam, Le MaistTc, Ramsay il Matt in by MI". George TV. Milam acksollville Fla.. ; lTlr. Renal F. OamaUer and IJ/r. Robert E. Freer of "'Vashington, D.

White il Oa8e by Mr. Edgar E. Barton, J1fr. Macdonald Flinn and illr. Tholluu; B. LeaTY of Kew York, N. , for respondent. J:\lTLc\L DECISro:s BY Everett F. HAYCRAFT, IIL\RIXG EXAMINER INDEX Page PRELIMINARY STATEMENT - - -- - _nn n nn n n - n - n n- n 951 FINDINGS OF FACT_ __n--_____ -___--__n--__ 957 1. DESCRIPTION OF HESPO:;DENT AKD ITS GROWTHn- 957 A. P cspondcnt' s Inception, Gro,Yth and Acquisitions Prior to 1951- - 957 1. The Inception of Foremost Dairies, Inc___ 957 2. Pre-Complaint Acquisitions- - - -- - -- - 958 a. Prior to 11)45- 958 b. 1945 Acquisitions 958 c. 1946 AC'1uisitions--u_--_------- 959 d. )\)47 Acquisitions 959 e. 104S Acquisitions-- 960 f. J940 Acquisitions 960 1950 Acquisitions_____------ 960 B. Respondent s Financial Record_ 961 II. RESPONDE:\T' S ACQUISITIONS OF CORPOHATIONS ENGAGED IN CO 1;IERCE AND THEm IAHKETS 1951-1956 962 ________ _______ ____ _ ______ 950 FEDERAL TRADE co:-nnSSIQX DECISmXS Initial Decision GO F.

FINDINGS OF FACT-Continued II. RESPONDENT' S ACQUISITIONS OF, ETC. Continued Page A, Introduction_n -- -- - -- --- - -- --n -- 962 B. The Acquisitions and Their Markets 962 1. Western Condensing Company- n__---------- 962 2. Blue Moon Foods, Inc., and June Dairy Products Co., Inc_____------- 962 3. International Dairy Supply Company and International Dairy Engineering Company - - -- 964 4. :Florida Dairies Company_ 065 5. Philadelphia Dairy Products, Inc_ 966 6. American Dairies, Inc_ 970 7. The DeSoto Ice Cream Division of Armour and Company - 973 8. Bridgeman-Russell Company, Inc_ 97-1 9. Crescent Creamery Co_ 976 10. Portsmouth Pure Milk Company and Pure Milk Company, 1nc 11. Old Hundred, 1nc-- 979 12. Moanalua Dairy, Ltd., and Rico Ice Cream Company, Lt(L- - 980 13. 'VVidemire, 1nc- - - - - - -- - -- - -- 980 14. Southern J\laid, Inc. , and ""Velch Milk Company_- 981 15. Central Dairiet:, 1nc 9S;) 16. Gunn Ice Cream Company-- 984 17. Graham s Dairy, Inc-- 981 18. Banner Dairies, 1nc- 985 HI. Tennessee Dairies, Inc_ 987 20. Phenix Dairy_ 905 21. Golden State Company, Ltd___ 1001 III. TESTnWKY OF M. A. ADELlIAK 1012 IV. RESPOKDEKT' S FLUID IILK SALES 11\ CERTAIN SEC- TIOKS OF Tile COUNTRV___ J017 CO)! CL USI OKS- - - - - - - - - - - - 1018 A. AS TO THE FACTS--_ 1018 B. AS TO THE LAW-- 1023 1. Violation of Section of the :Federal Trade Commission Act_- 1023 2. Violation of Section 7 of the Clayton Acl----_ 1028 (1) The Relevant Lines of Commerce____ 1028 (2) The Section of the Country-- 10aO (3) Interstate Commerce- 1031 (4) Probable Adverse Effect upon Competition or TendellCY tOlyard )'Jonopoly--_ 1033 (a) Horizontal Acquisitions_-- 1033 (b) Conglomerate Acquisitions ----- 1039 (c) J\Iarket Extension Acquisitions-- 1040 ORDER OF DIVESTITURE 1047 , FOREMOST DAIRIES, INC. 951 944 Initial Decision PRELDIIXAHY STATI;)IEXT The Commission, on .J alluary 17 , 19;1G, issued a complaint against Foremost Dairies, Inc., anew York corporation, (sometimes hereinafter referred to as Foremost) cJmrging it with violation of Section 7 of the Clayton Act, as amended December 29, 1950, n.nd Section 5 of the Federal Trade Commission Act, through, and as a result of series of transactions beginning in J al1uary 1951. It is "Ueged in the Commission s complaint that the respondent Foremost, with its main and principal business offce located at 2903 College Street, J acksonvil1e, Fla., was engaged in the purchase, proc essing and distribution of a diversified line of dairy producl8, including one or HlOre of the following products: milk, cream, jce cream cheese, butter, eggs, canned fresh milk and evaporated milk, which it sold a.nd distributed to retail consumers and to stores, retaurants, hotels and other nliscellaneous outlets.

It is further aDeged that, as a direct result of the acquisition of certain nn-med corporations, Foremost wa.s at the time of the complaint one of the four largest processors and distributors of dairy products in the linited StlLes. It is specifically "Ilegp that Foremost had viohted Section 7 of the Clayton Act in that the "equisition of the stock or assets of the corporations listed in paragra.ph 4 of the complaint either individuaHy or collectively, may have the cfIect of substantially lessening competition, or tending to create a monopoly in certain specified wa.ys.

It is also alle.ged that, in addition to Foremost's acquisitions of corporations listed in the complaint, it had also acquired nine additiorml dairy product concerns in 1951 and HJ52, located in the State of Florida., which were indivic1ually owned and v, ere not corporations. It is further "Heged that the constant and systematic elimination of actual and potential compet,tors, by means of the acquisitions described in paragraphs 4 and 6 of the complaint: "arc all to the prejudice and injury of the public and constitute unfair methods of competition and unfair acts and practices within the intent and meaning of Section 5 of the Federal Trade Commission Act. On March 20 , 1956, the answer of respondent was filed in which respondent denied the allegations of para.graph 4 of the cOlnplaint except that the respollclent admitted th,lt it had acquired the stock or asset of thirteen corporabons which \\-ere engaged in conU11erce in the dairy products business. Answe.ling pfll'agl'aph 5 of the complajnt respondent denied t.he al1cgaJions "as a direct result of the above listed. , Initial Decision f)0 F. acquisit,ions " and admit.ted the remaining allegations of paragraph 5 of t.hs complaint. It denied each and every allegation contained in paragraphs 6, 7 , 8, and 9 of the complaint, and set up as a second defense that the acquisitions were mftde in the public interest. R.respondent a.lso filed, as a part of the answer, a motion tD dismiss on the grounds that the complaint failed to st.ate a cause of action, a,nel a motion was also ma-de to strike, severally, frolll the complaint certain11 parts there.of as being legally insuffcient, irreleva, , immat rial or impertinent. Reference to the complaint indicates that the portions covered by the motion to strike were those subparagraphs of paragraph 4 relating to acquisitions of certain small companies and corporations not engaged in C01111ne1'CC, and also that the illation in the answer was to strike all of paragraph 6 which is the charging paragraph as to the concerns alleged to have been acquired in violation of Section 5 of the Fe.le-ral Trade Comlnission Act. An answer to the foregoing motions was filed by counsel supporting the complaint on Jlhrch 21 1956.

On 1\farch 27 1956, at the initial hearing in .JflCksonvil1e, Florida after hearing ora.I argument on respondent's motion, the hearing exminer struck from the complaint the allegations with reference to the Section 5 charge, on the grounds that the Commission had no jurisdiction over the acquisitions under Se,ction 5 of the Federal Trade Commission Act.

An appeal was taken, by counsel supporting the complaint for the Commi&sion, from this ruling of the hearing examiner on A. april 2;- 1950. Answer was filed to this appeal by respondent on May 21, j 956. On June 4, 1956, the Commission sustained the appeal of cmmsel supporting the complaint, and reversed the ruling of the hearing examiner in the following language:

The Commission being of tbe opinion that the bearing- exi.llJJiner '\vn:3 in ('!Tor in this respect, and t,bnt facts inclicating- a violntioll of Section 7 0f tbe CJnytou Act, as amended, may also indicate a viobtion of Sectio:.1 ;') of tbe Federal Trade Commission Act, and, further. that practices not technically within the scope of a specific section of the Clayton Act nwy nnertheless l'ouf:titute 11 violation of Section:) of the Jec1eral Trade Commission _Act; and Tbe COlllnissiOIl being of tb2 further' opinion that in electing to charge are. spo11flent in this case Vi'ith violatioll of both Seeton 7 of the Clayton Act, as amended, and Section 5 of the Federal 'l' trade Commission Act, tile Commission acted in the exercise of its aclllinistrati\'e discretion, and that in so cluding- it made a decision un ","hieh the hearing exnminel' hns 110 antbOlity to sit in judgment.

Following this ruling, counsel snpporting the complaint, in a series of hearings, introduced evidence with reference to both the Section 7 FOREMOST DAIRIES JYC. 9,'3 Inital Decision allegation and the Section 5 anegation. Prior to, and following this ruling, approximately 1700 pages of testimony and more than 500 exhibits were introduced by counsel supporting the complaint, and were received in evidence.

On August 9, 1957, counsel supporting the complaint moved to amend paragraph 4 of the complaint to conform to the proof as to further acquisitions, which said motion "was granted, and the -answer by respondent to the original com plaint was allowed to stand for the amended complaint. On the s tlno date, counsel supporting the complaint closed their case in chief.

On December 9, 1957, respondent filed a motion to dismiss and to strike, relating to both the Section 7 charge and the Section 5 chaTge. This motion was followed by a brief filed on December 20, 1957, in support of said motion. Counsel in support of the complaint filed a motion and brief in opposition to respondent' s saiel motion on farch , 1958. Oral argument on said motion was held before the hearing examiner on May 8, 1958.

On May 12, 1958, the hearing examiner entered a formal order dismissing respondent's said motion to dismiss and to strike. On June 19 , 1958, respondent filed a motion to amend the l1hearing examiner s order denying its motion to dismiss and to strike. The substance of this motion was practically identical with the motion filed at the close of Commission s case in chief, in that it raised no new questions not heretofore argued and adjndicated, except that respondent asked for a ruling in the nature of a declaratory judgment as to which of the acquisitions, according to the hearing examiner, had violat.ed Section 7 of the Clayton Act.

On July 10, 1958, the hearing examine, at the beginning of the taking of evidence in support of respondent' s clefe,nse, held nn offll argument on respondent's motion. During the e0111'88 of this argument, at the request of the hearing examiner, counsel in support of the complaint made f!.n explanation of their position "\ith respect to what remedy they expected to invoke, other than divestiture, under the Section 5 charge. There.after, the hearing examiner made the following ruling- :

Xow, in doing that I want to make very plain that I haven t exnminec1 this record 'I;Uh a fine- tooth comb, and I mily r:l1ange my mind before I write my final decision, but as the record now stanels Oil the theory of conglomeratc acquisitions, \TltkI1 apparently 1s contemplated by Congress as being a little broarler scope nncler tlw amended Sertion 7 of the Clayton Art than was contemplated in the original Section 7 of the Clayton Act, cOllglomerate acquisitions have been brought witbin the purview of tbe statute. So, 011 that tbeory that your motion for dismissal was overruled as much as a1lYthing else, in my Inital Decision (\0 F. jurlgment you should mal;:e an attempt to defend or to present evidence in opposi. tion to whatever evidence has been presented on the following firms, whose acquisitions have been either by stade acquisition, stock exchange, or purchase of assets; Internat.ional Dairy Supply Co. ; Campos Dairy Products, Ltd. ; Gunn Ice Cream Company; Phenix Dairy; lves Dairy, Inc. ; Southern Maid, Inc. ; The Welch Ink Company; Bridgeman Russell Company, Inc. ; Marin Dairymen Milk Co., Ltd. ; Dairy Maid Creameries, Ltd, ; Banner Dairies, Inc. ; 'Videmire Inc. ; Crescent Creamery Company; Old Hundred, Inc. ; ).foanalua Dairy. Ltd. and even Rico Ice Cream Company, Ltd. of Hawaii; Golden State Campan;r. Ltd. ; lves Ice Cream Comp nr, a Florida firm; The DeSoto Ice Cream Division of Armour and Company; Ports-mouth lure Milk Company and Pure Milk Company, Inc. ; American Dairies, Inc. ; Blue Moon Foods, Inc. ; Philadelphia. Dairy Products, Inc. ; Florida Dairies Company; and Central Dairies, Inc. (Tr. 1833--) At this point, counsel supporting the complaint asked whether or not respondent would be required to put in any proof with reference to non-corporate acquisitions.

The hearing examiner ruled:

As far as I am concerned, they won t, beca11se I don. t propose to make any tidings on those acquisitiolls. I wil bunch them together into one group and say, as to these companies, testimony was taken in support of the complaint, and that is all.

The attorneys suppOlting the complaint then asked if the ruling was that:

. . . we have not made out a prima facie case with reference to the Section 5 charge? The ruling of the hearing examiner was, at this point: Xo. J\ly ruling is that I am not passing on it. I have already passed on it, and the Commission has reversed me; so, that is stil my position. You can arg-ue them before the Commission any way you want to on that. The case is open on that particular phase of it.

The examiner also ruled at that time that the Commission could decide "whether or not the attorney in support of the complaint had made out a prima, facie case, and whether or not they \vant a-anything done; that in the event the Commission dete.I11ined that the attorneys in support of the complaint. had made out a prima facie ease under the Section 5 charge, it ,\yollld be necessary for them to go back with the respondent and take defensive testing10ny with reference. to these nollcorpora,te acquisit.ions. The hearing examiner indicated that he was not going to require the respondent to do it, and that if the Commission wanted to require them to do it they may.

On July 21 1958, counse.) in support of the complaint fied an appeal with the Commission from the ruling of the hearing exan1iner of July FOREMOST DAIRIES INC. 955 Inital Decision , 1958, as to the Section 5 charge. This appeal was answered by counsel for the respondent on August 19, 1958. On September 10, 1958, the Commission granted the appeal of counsel in support of the complaint, and vacated the ruling of the hearing examiner of July 10, 1958. In taking this action1l, the Connnissioll noted that the hearing examiner had not ruled that counsel supporting the complaint had failed to make a prima facie case as to the (Section 5) allegations in the complaint. The foJ1m-ving language also appears in the opinion:

The effect of the ruling is to preclude any final decision on the acquisitions so eliminated, short of a remand, since respondent ilay rig"btfnlly claim hereafter that it had no opportunity to defend as to these. The Section 5 charge presents questions of law and fact which the Commission prefers to determine upon a complete record. This includes as to such cbarge any proper defense of the acquisitions concerned which the respondent may wish to aiter. \Ve hold, therefore, that it \vas- error for the examiner' to rule that the aCClui sitious other than those he listed need not he defended. Accordingly, We appeal of counsel supporting the complaint is granted and appropriate order vacating the examiner s ruling wil be entered.

Following the foregoing ruling of t.he Commission, approxirnately 3400 pages of testimony were taken in opposition to the allegations of the complaint, and more than 400 exhibits '\"e1'e receive.d in evidence. Counsel for respondent closed their case in chief on larch 31, 1960. Thereafter, rebuttal testimony was received in April ane! ,Jnne 1960. The taking of testimony was closed .TUlle 3, 1960. Thereafter, on August 19, 19BO, counsel in support of the complaint fied proposed findings, consisting of nearly 300 pages, and, on the same (bte, cOlllsel for respondent fUed their proposed findings 'containing more than 300 pages. Oral argument thereon was here! September 7 , 1960. Consideration has been given to the respective proposed findings and aU the reliable, probative and substantial evidence in the record \Ipon material issues of fact and law. Each of the proposed findings which have been accepted has been, in substance, incorporated into this initial decision. All proposed findings not so incorporated are hm.eby rej ected.

In view of the opinion of the hearing examillm, as hereinafter.r set forth in the conclusjems, no detfLilecl fij1clings will be made with respect to the following acquisitions by the respondent: Proprietorships 1. H. H. Parrish, and Almeida P. Parrish, trading find doing business in the name of Superior Dairy Products, Orlando, Florida. 2. O. H. Thomas, trading under the finn name of Vni"'ersity City Dairy, Gainesvile, Florida.

956 FEDERAL TRADE COMMISSIOC' DECISIONS Initial Decision 60 F.

3. F. L. Cloug-b allcl Roxie l. Clough of Starke, Bradford County, Florida. 4. P. S. Gonzales. doing 1:msinesf' under the name of Phil's Dairy, in Alachua Flodda.

5. Carl C. Swebilus, Demand. Florida.

6. ",Y. W. Lively, ::11'8. ,V. W. Lively, and l\Irs. 'V. .T. Brownlee, in partnership, doing business as Brownlee & Lively Dairy, Atlanta, Georgia. 7. :.11'. anel Mrs. C. R. \VlJiteIHHst. doing business as Whitehurst Dairy, Gaines vile, E'florida.

8. R H. IIart:,', doing' business unner the trade name of Jacksonvile Home Milk, Jacksom'ile, Florida.

Corporations 9. l\Irs. Tucl s Foods, Inc., Shf'rman, Texas. 10. Sunshine Dairy Products, Inc., Gaines\-"ile, Florida. 11. Royal Dairy Products. Inc., Ta.mpa, Florida. 12. Laurens Pasteurizing Plant. Inc. , LaurenE , South Carolina. 13. Diamond Dairy, Inc., Oakland, California. 14. Acme Dairies, Tallahassee, morida (in receivership). 15. Taylor s Homemade Ice Cream Co. , Fort 1Vorth, Texas. 16. R A. Shuey Creamery, Oakland, California. 17. Schneider s Creamer;)', Inc. , Eustis, Florida. 18. Redwood Empire Dairies, Inc., Fortuna, IIumbolt County, California. 19. Vander Die, Inc., St. Paul, Minnesota.

20. Rage s Ltd., San Diego, California.

21. Thompson Brothers Ice Cream Company, Butler, Pennsylvania. 22. Slade s Dairy, Inc., Santa Fe, New ?\Iexico. 23. II. A. :3IcDonald Creamery Co., Detroit, Michigan. 24. Jones and Griest, Inc., Washington, Pennsylvania. The foregoing concerns, beginning with 1\11'8. Tucker s Foods\ Inc. are corporations, bllt according to the evidence in the record produced by cOlmsel supporting the complaint, they were not engaged in interstflte commercp-, either in the purchasing of raw mfLterials or in the sale of dairy products.

Fun findings win be made with respect to the following acquisitions of corporations which were, nt the time the tes6mony was taken believed to be engaged in commerce:

1. Central Dairies, Inc., a Sonth Carolina corporation, Columbia, South Carolina.

2. International Doiry Supply Co., a Nevada corporation, Oakland, Californa. 3. Campos Dairy Products, Ltd., a Hawaiian corporation, Honolulu, IIawaiL 4. Gnnn Ice Cream Company, a Florida corporation, Pensacola, Florida. 5. Graham s Dairy, Inc., a Florida ('rporation, Miami, Florida. 6. Phenix Dairy, a Texas corporation. Houston, Texas. 7. Ives Dairy, Inc., a Florida corporation. Miami, Florida. 8. 'tennessee Dairies, Inc. , a Texas corporation, Dallas, Texas. 9. Southern Maid, Inc. , a Virginia corporation, Bristol, Virginia. 10. The Welch :\lilk Company, a West Virginia corporation, Welch, West Virginia.

FOREMOST DAIRIES, INC. 957 944 Initial Decision 11. Bridgeman-Russell Co. Inc. a Minnesota corporation, Duluth, Minnesota. 12. Marin Dairymen s Milk Co., Ltd., a California corporation, San Francisco, California.

13. Dairy Maid Creameries, Ltd. , a California corporation, Hughson, California.

14. Banner Dairies, Inc., a Texas corporation, Abilene, Texas. 15. Widcmire, Inc., an Alabama corporation, Sylacauga, Alabama. 16. Crescent Creamery Company, a South Dakota corporation, Sioux Falls, South Dakota.

17. Old Hundred, Inc., a Connecticut corporation, Southbury, Connecticut. 18. ),loanalua Dairy, Ltd., a Hawaiian corporation, Honolulu, Hawaii. 19. Rico Ice Cream Company, Ltd., a Hawaiian corporation, Honolulu, Hawaii. 20. Golden State Company, Ltd. , a Delaware corporation, San Francisco, California.

21. Ives Ice Cream Company, a Minnesota corporation, Minneapolis, Minnesota, 22. The DeSoto Ice Cream Division of Armour and Co., an Illinois corpration Minneapolis, Minnesota.

23. Portsmouth Pure fik Company, an Ohio corporation, Portsmouth, Ohio and Pure l\lilk Company, Inc., a Kentucky corporation, Ashland, Kentucky, 24. American Dairies, Inc., a Maryland corporation, Kansas City, Missouri. . 25. Blue Moon Foods, Inc. , a Delaware corporation, Thorp, Wisconsin, and June Dairy Products Company, a New York corporation (wholly owned subsidiary of Blue Moon Foods, Inc.

26. Philadelphia Dairy Products, Inc., a Pennsylvania corpora tion, Philadel phia, Pennsylvania.

27. Florida Dairies Company, a Florida corporation, Miami, Florida, 2R. Westcrn Condensing Company, a California corporation, Pctaluma California.

Appropriate findings of fact, conclusions and order are hereinafter set forth.

FINDINGS OF FACT DESCHIPTION OF RESPOXDEXT AND ITS GROWTH A. Respondent's Inception, Growth and Acquisitions Prior to 1951. 1. The Inception of Forem 08t Dai,'ies, Inc. The present Foremost Dairies, Inc. , a ew York corporation, ,vas evolved from its original formation as a Florida corporation which in October 1931, succeeded to an earlier corporation known as Foremost Dairy Products Corporate.ion. At its inception, Foremost took over certain assets of the predecessor company, inclucbng milk processillg plants in .TflC'ksonvil1e and Dayt.ona Beach, Florida; VnJdosta Georgia; and Birmingham, Alabama. Foremost continued to serve 958 FEDERAL TRADE CO IS.SIO DECISI01\ Initial Decision GO F those markets, ana within a year acquired plants previously owned by the predecessor company in four other markets, namely, Atlanta and Savannah, Georgia; Charlotte, Korth CaroEna; and Spartanburg, South Carolina. From the very beginning, respondent may be described as a multi-plant operation, that is, the operation of a number of plants in various market areas under one administrative head. 2. P,' Compla.int .1cqwisitions.

a. Prior to 1945.

In the mid 1930' , Foremost first entered the Miami, Florida, market with the acquisition of Clll'ist-jrl1sen s Dairy, which was engage(l in both the fluid milk and ice ere-am business, ,with sales aggregating approxinliltely $250 000 a year. In 1937, Foremost aeqnired an ice , l:JennsylYania.cream plant. in the Oakmont Section of Pittsburgh By 1941, respondent was serving 14 commlUlities, as compared with itr original territory of 12 communities, scattered in four sout.hern stat.es but its sales had nearly quadrupled.

In 1942, Foremost acquired the JacksouviJle, Florida, milk business of a produc.er-distributor, S. Ben Skinncr, who operated one or two milk routes. In that sa.me YC:1l' , in T acksonville, responde.nt ncql1ire. from Coble Dairy Products, its warehouse and cream and condensed lnilk. distr"ibution business. This business inelucled neither milk nor ice cream, and consisted of sales to other dealers. Foremost operated this business for a short period and then discontinued it, and subsequently sold the building acquire,!. In 1942, Foremost also acquired an ice cream plant in Brooklyn, N ew York. This plant was closed in 1955, and the property subsequently sold. b. 1945 Acquisitions.

In 1945, Foremost acquired a smnJl icc ere fun plant in Miami Florida., from the liami Ice Cream & Dairy Company. Xo milk business ,vas involved in this transaction. Fl'01n n lia.mi producerdistributor leadowbrook Farms, respondent aha acquired tv. O to four milk routes. That year, Foremost also acquired, from Florida Iilk Company, a small plant operating not more t.han live or six milk routes in St. Petersburg, Florida, ,,,here Foremost was not then in business. Hespandent a.Iso acquired, in 1945 , the milk business, consisting of odu('ts Co., in Atlantathree 01' four routes, of Aristocrat Dairy PJ Georgia. The fOl'nler owner ret.ained his ice creilll operation, and consmall milk plant \yas acquiredtinued in business in Athtnta. Another.r by respondent in 19,1-5 from City Dairies, in IGngsport, Tennessee. In Charlotte., X orth CaroEna, a producer-distributor operating five or six milk routes, lUlcler the name Arro\'wod Farms, sold his business to inForemost after his plant had burned. A final small acquisition, , , ..

FORE OST DAIRIES , INC. 959 944 Initial Decision 1945, was respondent's entry into the Montgomery, Alabama, market through Young Ice Cream Company, which operated approximately three routes.

A su bstantiaJ acquisition was made by respondent in 1945, when it purchased, frolll a Court-appointed receiver, the remaining assets of Southwest Diliry Products Company, consisting of combination milk and ice cream pia.nts in San Antonio, Texas, and Shreveport, Louisiana.; a milk plant in .Fort V orth, Te.xas, and an ice cream plant in IIouston, Texas; a, milk receiving station at Cleburne, Texas; and ice cream distribution points at Beaumont and I-Iuntsvi11e, Texas. Southwest Dairy Products Company had been in business for 2.5 to 30 ye,u' , and had attained sales of approxinmtely $3 minion. Foremost had not previously done business in any of these areas served by this acquired company.

By lD45, respondent with its eutl)r into the various markets above described, had jncTeasecl its sales to mote than three times its 1941 Imrel or approximately fonrteen times its 1932 revenue. c. 1946 Acquisitions.

In 1946, Foremost acquired a small, local butter business from J efierson Creamery in Americus, Georgia.. Hesponclent used tho plant :for a time to furnish butter for its manufacture of ice cream in Atlanta :incl Columbus, Ge.orgia, and later discontinued this operation. That same year, FOTe-most acquired the Forth V orih and Abilene Texas iee cream business of Pangburn Ice Crea.m Co., which was owned by a candy company that was abandoning its ice cream operations. Foremost had no dairy business of any kind in the Abilene market prior to this acquisition. By the end of 1946, Foremost was serving thirty communities in eight states.

d. 19H Acquisitions.

Respondent, in 1947, acquired the J. C. Carron Co. s sma)) plant and ice cream business in Florence Alabama; Fayetteville, TcnnesseB; and outlying sections of Tennessee. Shortly there 1after\ in 194: , Foremost acquired and consolidated with the Carroll Operation, a small ice cream plant of the Florence Cremnery, Inc., in Florence, Alabama. That snme year, in I\liami, Florida. Biltmore Dairy Co., a. small produc.er-distributor, which had sold its farm for real estate development disposed of its approximat.ely rour lnilk routes to respondent. Less tluvn ha.lf of its equipment was used by Foremost, and the balance was taken by suppliers who held liens upon it. In Houston, Texas, rcspondent added to its existing ice cream business with the acquisition of the fluid milk plant of the Metzger Da.iry Co. Also, in 1947, Foremost a.acquired a.nd integrated into its existing business in Spartanburg, 960 FEDERAL TRADE CO:M nSSION DECISIONS Initial Decision 60 F.

South CRrolina, two or three routes of a producer-distributor operating as Smith's Dail"Y, who continued to produce milk on his fanl1. Finally, respondent acquired the ice cream business of A. A. J\.1derson in Ruston, Ahbama.

e. 1948 Acquisitions.

The three or four milk routes of Louis Sheffeld, a small .f acksonville producer-distributor, ,,8re purchased by Foremost in 1948. In Houston, Texas, the milk business of F. & :\f. Dairies, Inc., otherwise unidentified, was acquired. That same year, respondent acquired the small ice cream business of the ,Vatson Ice Cream Co. in Shreveport Louisiana.

f. 1949 Acquisitions.

Respondent entered the St. Augustine, Florida, market in 1949 with the acquisition of Superior Dairies, Inc., which operated a combination milk and ice cream plant. The owners, producers with considerable farm interests, continued thetr milk producing business. It was estimated that the sales of this concern represented from eight to ten percent of the total volume of fluid milk in the St. Augustine area. Foremost also entered the Columbia, Tennessee, market that year "'Jth its acquisition of Tuell Da,iry Co. a milk and cheese concern operating six to eight milk routes. The small ice cre.full distribution of Last.y Ice Cream Co. in the towns of Sherman and Bonham, Texas, 'vas also tCquirecl by respondent in 1949. There 1"as no plant involved this transaction. Anot.her small producer-distributor in Jacksonville Florida, W. V. Chason, operating byo fluid milk routes, sold them to Foremost when he gave up distribution to concentrate on production. Similarly, in Houston, Texas, respondent acquired one or tllO milk routes operated by L. B. Fish, a small producer-distributor. g. 1950 Acquisitions.

In 1950, respondent acquired the B1uebird Ice Cream Co., which operated a small ice cream plant and two retail ice cream stores in Spartan burg, South Carolina, and one retail store in both Columbia South Carolina, and Gastonia, Korth Carolina.. In Daytona Beach Florida, that year, it producer-distributor, Ernest Dowdy, cliscontinued his distribution and sold his two or three routes to Foremost but continued production. At Beaumont, Texas, where Foremost had been distributing iee cream by truck from its Houston plant, Colonial Ice Cream Company, which was going out of business, was acquired. Solomon Dairy, a smaH producer-distributor, ,with a milk distrilmtion of about 200 gallons a day, flld a small ice cream business in the Town of Quincy, populotion 5 000, in ,Vest Florida, sold their _____________________ __ FOREMOST DAIRIES, INC. 961 944 Initial Decision distribution to respondent in 1950, and continued the production of milk on his farm.

In that same year, Foremost also acquired the Sumter, South Carolina, milk business of a producer-distributor, Quaker House, Inc. It also acquired the Lure Ice Cream Co., a small plant located in East Point, Georgia, a suburb of Atlanta, selling ice cream mix to drive-in stands in the Atlanta area, and integrated its business into respondent' s Atlanta plant. It ncxt acquired thc Caroline Dairies in Columbia, Sonth Carolina, which involved a milk business owned by a farmer who had previously purchased it from Central Dairies, an ice cream company in Columbia which \Vas subsequently acquired by respondent, as will hereinafter be set forth. The City Dairy Company, in Statesboro, Georgia, a small ice cream company, was acquired by respondent in 1950. Its distribution was integrated into Foremost' s existing routes. Finally, respondent acquil"ed Florida Milk Farm s approximately six routes in J\limni, Florida, in 1950 when this producer-distributor sam its farm for real estate development. By the end of 1950 , Foremost was serving L14 southern communities and was considered to be the South's largest independent dairy company, and one of the ten largest dairy companies in the nation. B. Respondent' s FinancwZ Reem.d.

Respondent' s financial growth, from its inception, 1932 to 1D59 as shown by the record, has been as follows: Your Nctsaks KetIncomc I TotaJ!lsscts 1932 , OUO, 000 s-- 1910- , 828. 066 3JJ i' , 182. 337 1045______--- , 383, 645 066, 15 I , 451, 44fi 1947 - 007 4-7 2(, 26S 166 581 1048- 040, 151 , 168 , 008, 411 1049,_____---- , 011 , 579 245 0.1 , D70, 497 1050______ , 160, 050 , 248 f36 , 812, 655 J951_ 53. 249, 3.-:13 , 50S, 403 : , 253, 9. 1952_ , 53G )51 )48, 415 017. 850 1953_ 117, 154 , 018, OD5 '12 , 210; 264 1954 247 370 020 , 101 , 020 , 361 , J 07 1955______-- :388, 068, n )O I , 637, 0;)8 141 , 8S0, 3, 1956_ 382, 305 , 8fJ2 163 912 142, 543, 76 1957_ 415 141 110 I , 5:n. 3-1 147 619 525 1058______-- 416 447 023 147, 2D4, 6, J050_------- "40. 090, 281 . 493.9, 7,10954 II 15,\ 17c, 425 962 FEDERA TRADE COMMISSION DECISIONS Initial Decision GO F.

nBSPONDENT S ACQIDSITIONS OF COHPORA'tions ENGAGED IN COMMERCE AND THEIR MARKETS, 1951-1956 A. I ntTod1Iction.

In the fmdings set forth in this section, there are presented the salient facts of record rebting to products handlerl and competitive conditions in the maTke.ts involved as to each of the acquisitions of corporations believed at the time the testimony was taken to be engaged in commerce. The acquisitions are not presented in the chronological order of the dates of their acquisition.

B. The Acq"isition., u,nd Their,'Jiarkets. 1. TVeste1' n Condensing Cmnpany, a Oa.lifmnia Om'porab:on, with Exec"tive Offces in Peta/wlna, Oali/omia, and Geneml Offces in Appleton, 117 iSGunsin.

(a) The Acquisition.

On September 22 , 1D:'55 , Foremost acquired the capital stock of Western Condensing Company (sometimes here-in after refeTre.c to as 1Vestern) in a stock e;xchallge whereby 1.2 shares of Foremost COillnon stock were exclu11gcd for each one outstanding share of 'Vest-enl stock. Prior to the acquisition, 'Vestern was engaged prhlCipally in the processing of whey, a by-product in the manufacture of eheese, a.nd other milk by-products into feed ingredient.s, animal feed products, la.ctose and other edible products prepared from ,,-hey. For the year ended.l March ;J1 , 1955, 1Vcstcm produced approximately 129 000 000 pounds of feed ingredients which were sold for approximately $7 250 000; approximately 45 000 000 pounds of animal feed products, ".which were sold for approximately $2 800 000; 27 000 (JOO pounds of ladose, a.nd other food products, which ,were sold for approximately $3 500 000. Total saies for the year were approximately $14 000 000, with a net income of approximately $600 000. Prior to the acquisition, 'Vestern owned a 50% interest in the Instant Milk Company, with the Carnation Compa.ny owning the other 50% interest. The Instant l\iilk Company manufactured and marketed products USillg a process developed in \Veste, s laboratories. (b) Market Conditions.

There is no evidence in the record as to the nature and extent of t.he marke.t in the areas where the products manufactured a.re sold. 2. Blue iloon Foods, Inc., a Delaware Oorporation, with Principal Offces in Thorpe, Wisconsin, a.nd its Wholly Owned Subsidw.ry, June Daily Prod"ats 00., Inc.

FOREMOST DAIRIES, INC. 963 Initial Decision (a,) The Acquisit.ion.

Pursuant to an agree,ment dated De member 24, 1954, Fore-Blast. acquired t.he out.standing capital stock of Blue Ioon Foods, Inc. (sometimes hereina.after referred t.o as Blue Moon), and t.he who1Jy owned subsidia.rie. of Blue :Moon, June Dairy Products Co., Inc., a Delaware corporation (sOlnetimes hereinafter referred to as J nne Dairy), located at Xe'iv York, New York; and two small \Viscousi11 cheese corporations, issuing therefor 131 934 shares of Foremost com11l011 sj- , haying a market value, at the date of acquisition, of approximately 375 000, plus $1 970 000 par value of Foremost preferred stock. Foremost was also to assmne all liabilities of Blne :;\0011, which, as of December 31, 1954, amounted to approximately $::1 160 000. Prior to t.he acquisition, Blue AIoon and its subsidi ries were engaged in the nlanufac.tllre and processing 'Of -eherse, and in the wholesale distribution of butter, cheese, pmydered milk, margarine, frozen foods and dehydrated fnlit-s and vegetables. FOl" the year preceding the acquisition, Blue 1\100n and its subsidiaries had net sales of approximately $49 500 000, and, as of December :H , 1 D3-J, total assets of 'approximately $7 160 000.

For the fiscal year ended Iarch 31, j054 , Blue Ioon hac! cheese saks of approximately 37 million pounds and bl1ttcrsnles of approximatdy 60 million pounds. During the. same year, its ,yhol1y owned subsidiary, .June Dairy, sold approximately 25 million pounds of butter, approximately U. million dozen eggs, approximat.ely 2 300 000 pounds of poultry, and approximately 2 400 OO pounds of margarine plus an unspecified nnlOunt of che,ese. une Dairy was a distributor for Blue roon and lnaintained distributing facilities in Jersey City, New Jersey, Bridgeport, Connecticut, and l\Iiami, Florida, from, which a complete line of cheese, butter, pD-yderec1 milk, and miscellaneous food products were distrihut.ed.

(b) :Vhrkct Condit.ions.

The record indicates that, at the t.ime of the acquisition of Blue f'Oon and its subsidiary .hme Dairy, the respondent was engaged in the manufacture and dist.ribution of some butter and cheese, but there is no evidence to indicate whether it 'iYilS in competition with Blue Moon in Bueh operation. Furthermore: there is no evidence in the record as to the eompet.itive market conditions in those areas "here June Dairy dist.ributed products 'Other,r t.han t.hose handled by the respondent, such as eggs, poultry, ca.nned meats, powdered milk, margarine, frozen foods, dehydrated fruit.s and vegetables. 719- n4-- Initial Decision 60 F.

3. International Dairy S"apply Oompany, a Nevada Oorporation and International Dairy Enginec?'irl-g C01npany, a Oalifornia Corporation, Both "oith Offces in Oakland, Oalifomia. (n) The Acquisition.

On February 11 , 19.02, Foremost purchased all the outstanding capital st.ock of t.he Int.ernationaI Dairy Supply Company (sometimes hereinafter referred to as International Dairy). In the same transaction, Foremost also acquired the capital stock of International Dairy Engineering Company (someti.mes hereinafter referred to as Inte.rnatjonal Engineering), and Diamond Dairy Inc., a Nevada corporation. The total consideration paid for these three concerns consisted of $3 000 000 cash, and 1.02 37.0 shares of Foremost common stock which stock had a then market value of approximately $2 285 000. Among the a,ssets of International Dairy, acquired by Foremost., was a11 the outstanding capital stock of Campos Dairy Products, Ltd. of Honolulu, :Ha\Yaii, hereinafter mentioned under the reference to acquisitions made in I-Iat\fLii.

International D )ry \Vas engaged in t.he proclnct-ion and sale of recombined milk eream, buttcrmilk, ice cream and cottage cheese. It was formed by Grover B. Turnbow, nmy President of respondent., for the purpose of selling recombined milk and other clairy products to the UnHecl States Army for use by the armed forces in J aprtn, Okinawa and Gnml1. At the time of the Hcquisition of International Dairy, 1\11'. Turnbow became a director ltlld Vice President in Charge of Operations of respondent Foremost, and he eontilluecl ns Presjdent and )'1manager of the two subsiclial'Y corporations, International Dairy and International Engineering.

International Engineering was organized by Tnrnbow to do engineering rpsefl1'ch, and to build plants and supply t.he clairy product jngredients for recombined milk and other dairy products for the Far East operations 'carried on by International Da,iry. It produced anhydrous fats and milk solids which were shipped to International Dairy for further processing. Its only other customer \vas tlle T;nitecl Stat.es Government, 1Vhichonce a year purchased fats and solids used in ma-king recombined dairy products on Adak Island in the Aleutions. It operated a ne,w plant aJ At\Vater, California. (b) Market Conditions.

There is no evidence in t.he record HS to the competitive market conditions in the products manufactured and sold by International Dairy, an of which, as herp.inbefore indicated, were solel out.side of the main- Jand of the United States.

FOREMOST DAIRIES 965 Initial Decision vvith respect to the subsidiary, Diamond Dairy, Inc., the evidence in the record indicates that, prior to the acquisition, it was engaged in processing and distributing Huid milk a.t wholesa.le a.nd retail in the Oakland, California, area. It had at that time, approximately 2. of the total fluid milk sales in the Alameda-Contra Costa marketing area. It was later merged with the R. A. Shuey Crea.mery, acquired by respondent in December 1952. The acquisition of Diamond Dairy 'vas the init.ial entry of respondent in California in the processing and marketing of fluid milk. The Diamond Dairy facilities were used primarily 8.S a control laboratory for the testing of the recombined milk product ingredients that were shipped to the Far East. 4. Flol'h7rt Datl'/es CO'npany, a Florida, C01'poration, Afia1ni Florida.

(it) The L\.acquisition.

ny an agreement, dated August 29, 1955, respondent purchased the assets of Florida Dniries Company, Iia1li, Florida, paying therefor 000 shares of Foremost common stock having a market value of approximately 8080 000. Florida Dairies was a. single plant concern selling its fluid milk primarily at retail in the :Miami, Florida, area. It hac! a plant capacity of approximately 8 000 gallons a day, and in 1955 it sold approximately 1 800 000 gallons of fluid mille As April :10, 1955, it had t.total assets of approxinmtely $1 200 000, and during the year enrled, its net profit was approximately $159 000. (b) :Market Conditions.

Tho record contains evidence with respect to the sales of the principal distributors of fluid milk and ice creaUl in the :Miami area for the year H)50 , whe-n Foremost's sales began to be substantial in that ate. At that time, respondent's sales of fluid milk represented approximately 8% of total sales of fluid milk in the -'Ii ami area. The other principal distributors of fluid milk in that area were Borden with 20%; -'lcArthur, a local dairy, with 20%; and Home J\Iilk another local dairy, with 18% of total Miami area sales in 1950. Two other local dairies, which Foremost acquired in 1952, were Graham Dairy and Ives Dairy, \ViUl 3% a,nd 2% respectively, of total sales in t.hat area in 1950. During that same period, Foremost had 1770 of the s,des of Ice Crearn in the l\fiami area, its principal competitor Swift, had 2(-%, Scaltest, 24- and Borden, 10)10. At the time of the acquisition of Florida Dairies, in 1955, Foremost's share of the fluid milk market, in the area comprising Dade Broward ancll\1:onr.oe Counties (an area larger than the :Miami area :in which Florida Dairies sold), ,vas 9.2%, and Florida Dairies, was 96%. The other principal competitors in the sale of fluid milk 966 FEDERAL TRADE COMMSSION DECISIONS Initial Decision 60 F.

in that area were McArthur, with 23.03%; Miami Home Milk, with 15.94%; and Borden, with 11.18%. Combining the above percentages of Foremost and Florida Dairies, for that year, gave it 16.16%, and placed it in second posit.ion in that three-county area in the sale of fluid milk. In other words as a result of the acquisitions which Foremost had made between 1950, and the acquisition of Florida Dairies in 1955, it. advanced from approximately 8% of the fluid milk sales in the "liami area to 16.16% of fluid milk sales in the t.three-county area referred to above. There is no indication of an adya.nce in the share of market in the. sale of ice cream.

Counsel for the respondent, in their proposed findings, with respect to this acquisition argued that respondent had not ndycrsely affected competition in the j\iiami fluid milk market, apparently basing their argument upon the lea,dership in the market of local, independent concerns, and the inability of respondent to hold the share of the market which it held at the time of the acquisition of the local processors. They contend that respondent was third in the market instead of second as has been found by the UlHlersigned; from an analysis of t.he exhibits presented int-his record. On the other hand, it is believed that there is a definite tendency to gain a dominant position in the I\fiami area on the part of the respondent. in the fluid milk market, which admittedly, it multi-plant opeTatOI', has an adv l-tnge over its local competitors, and has advanced from a minor f.actor ill the market to a major factor, and, although it has not yet attained full lea.dership, it is found that the acquisition of Florida Dairies, Inc.. has given the respondent a decisive advantage over its competitors in the sale of fluid milk in the fia.mi area. Its largest competitor in this area, :McArthur, being a local concern, uoes not 11a ye the .advantage of the di versified operation enjoyed by respondent. 5. Philadelphia Dairy Products, Inc., a Pennsylvania Corporation Philadelphia, Pennsylvania.

(R) The Acquisition.

In July 1955, Foremost acquired operating control of Philadelphia Dairy Products, Inc. (sometimes hereinafter referred to as Phil dephia Dairy), with principal offces located in Philadelphia, Pennsylvania, and four wholly-owned subsidiaries. By May 15 , 1956 Foremost had acquired 96% of the capital stock of Philadelphia Dairy. Prior to the acquisition, Philadelphia Dairy, and it. wholly owned subsidiaries, processed and distribut.ed flnid milk and allied da.iry products, including ice cream, in Pennsylvania, New York, New Jersey, Delaware, Maryland, and Xorthern Virginia. The record FORE:MOST DAIRIES , INC. 967 944 Initial Decision shows that, in 1953, Philadelphia Dairy, and its subsidiaries, operated the following procesing and distribution plants: Ice Crea,m. Manufacturing and Dis- Flltid JIi-lk Creamer-ies tributing Plant!)' Benton, Fa. Philadelphia, Pa. Fairdale, Pa. \Yilkes-Barre, Pa. Leraysvile, Pa, Dusbore, Pat Rnshvile, Pa. Richmond. Va. York Springs, Pa, Ice Cream Di.strilmtiug Statfo1ts Ul1ionvile, X. Allentown, Pa. Delaware, N. Harrisburg, Pa. Ciarton, Del. Lebanon Pa. Snow Hil, Md. Pottstown, Pa. Jfilk Processing and Bottlng Pla-nts Sayre, Pa. Philadelphia, Pa. Scranton, Pa. Ardmore, Pa. Wiliamsport, Pa. AJIclltown, Pa, :\lo11tir.ello, N. Serantoll, Pa. Portvi1e 'Vilkes- Barre, Pa. Asbury Park, X. Gloucester, N. Atlantic City, N. Hoboken, ;-T Bergenfield, X. Riehmond, Va. Xe,vark, 1\. Milk D istribllting Stations 'l' renton .1. Darby, Pa. Laurel, Del. Brooklyn, N. Wilmington, Del. Staten Island, N. Waynesboro, Va. Ne\vark, N. Millt A!anufadllri11I7 Plants Carlstadt, N. S('ranton, Pat Dnshore, Fa.

In 1954, Philadelphia Dai.ry and its subsidiaries had net sales or approximately $18 000 000, with a net income of approximately 200 000, and total assets of approximately $22 000 000. Said sales were distributed in the various locations in the following amounts: FLUID : VhLK LocalirJn8 Gallons Philadelphia Dairy:

45th Street - . 174 , 393 Ardmorc- - - -- --- - -- - , 038, 260 l)arby - - - - -- . 784, 965 Gloucester - 111 151 AllentO'vll - - - - - - -- -- - -- - -- - -- - -- - - - - 810 413 :"orth l'philadelphia- - , 630, 203 549, 385 _____________________ ) ) _ Initial Derision 60 F.

LOCaton8 Gallons Janssen Dairy:

Brooklyn, 999, 614 CarlstadL- - - - - - - 844 841 Hoboken (Grand St. 566 Hoboken (Jefferson St. 1, 772, 227 1'ewark, 16i, 347 Staten Isiand- - - -- 145 678 , 932, 273 Richmond Dairy - - -- --n__ , 387, 227 Woodlawn Farm Dairy:

Scranton- - - - , 447, 003 Wilkes-Barre_ 494. 957 941 960 Tota.L---- -------- 26 810 845 ICE CREAM Philadelphia Dairy:

Philadelphia- - -- --- --- -- -- - - - -- n --- --- -- , 9:12, 555 TrcntoD_- -- - 329, 358 Laurel 277, 088 Bergenfleld- - - --- --- - ')52 , 659 Atlantic City - - - - --- - ---- - 176, 494 Asbury Park_ 187 314 Pottstown - - - - - - - - 420. 932 Lebanon 120, 971 Wilmiugtoll_ 31.') , 538 Allentowll 391 731 IIarrisburg___- - - - - - - 347 00B Monticello___ J 42, 286 Newark- - -- - 211 020 , 404, 965 Harrington Dairy:

Dushore__ 137 616 Portvilc_ 170 313 Sayre- - - 192 Wiliamsport_ 1\)4. 513 69':1 , 687 . .

FOREMOST DAIRIES, INC. 969 944 Initial Decision Locations Gallons Richmond Dairy:

Richmond- - - --- -- - - -- -- --- --- 408, 387 Richmond-Eskimo 467, 308 VVaynesboro- - - --- - - - 115 221 990, 916 Woodlawn Farm Dairy:

Scrantoll 332, 139 Wilkes-Barre---- --- - -- - - - --- 395, 722 727, 861 Total -- -------- -- --- --- --- - ---- --- --- --- - 8, 818, 429 Prior to the acquisition, Fore,most operated an ice cream plant in Brooklyn, New York, which had sales in 1D54 of 330 225 gallons. The Philadelphia Dairy plant, selling in that same area had, in 1954, sales of approximately 531 012 gallons.

(b) Market Conditions.

Respondent was in competition in only one a.rea with Philadelphia Dairy prior to the date of the acquisition. As hereinabove indicated this was the area served from Foremost s small ice creanl plant in Brooklyn cw York, which distributed to customers located in the five boroughs of ew York City, and the remaining counties of Long Island. Philadelphia Dairy also distributed ice eream from its Bergenfield and Ne\vark, New Jersey, branches in that area. In February 1955, the Brooklyn plant of Foremost was closed. Sales in the Kew York Cit.y-Long Isbnd area y,ero thereafter made from the Phihk delphia Dairy, Kewark and J3ergenfield, New Jersey, plants. According to the figures in the record, the volume of the combined sales of Philadelphia Dairy and Fore.l1ost in the above re,ferred to area, in 1954, was 861 237 gallons. Since the acquisition, the volume of Foremost' s saies in that saine area ha.s declined to 677 068 gallons in 1957. There is no evidence in the record indicating the total vol um8 of ice ere,am sales in the area served both by Foremost and Philade.Jphia Dairy prior to the acquisition.

Other than a.s to its home market, Philadelphia, "Where approximately one-third of all of its fluid milk was sold, the record does not contain evidence showing the market and other facts necessary to evaluate the effect upon competition of the Philadelphia Dairy acquisition. In the Philadelphia market, which has been regulated under a Fedel'alllilk Market Order Program for a number of years the market share of the Philadelphia Dairy, at the lime of the acquisi- 970 FEDERAL TRADE COMMISSIOC' DECIBIONS Initial Decision 60 F.

tion, was 9.3%, which share increased to approximately 10% in 1958. The principal competitors of Philadelphia Dairy, in the Philadelphia market at the time of the acquisition, were Supplee Milk and Ice Cream Co., in fluid milk, and Breyer Ice Cream Co., in ice cream both subsidiaries of National Dairy; Abbott's Dairy, a large independent concern; and the third largest competitor in the sale of fluid milk was probably Harbisons Dairies, another "independent. 6. Ame1'l:o(Jn Dai'i'ies, Inc., a 3faryland Oorporation, with Principal Office in 1(ansas City, Jli8801lri.

(a) The Acquisition.

On October 1 , 1954, Foremost acquired the outstanding capital stock of American Dairies, Incorporated (sometimes hereinafter referred to as Amcriean Dairies), for approximately $7 000 000 in cash. Inclllde(l in this acquisition were fourteen wholly owned subsidiaries of American Dairies 'which were enga,ged in the processing and sale of fluid milk at wholesale and at home delivery retail, ,mdjor in the manufacture and sale of ice cream, butter, cheese, and cottage cheese. The na.mes of these subsidiaries, their location, and the products produced or sold are set forth as follows:

MA1\l'FACTURI'IG 8cBSIDlARIES State and city Name of company Producl& ARKA"'SAS Greenwood Community Crmy. Co. of lv:- Cheese kansas, Inc.

Ozark Ozark Crmy. Company, Inc. Cheese-Cond. Swt. Crm. aragould Tastemark Dairy Co. ?\Tilk (1. C. Dist. Only) Waldron Community Creamery Co. of Cheese Ark. , Inc.

KA1\SA8 Hutchinson The l\Ieriden Creamery Co. , Inc. Buttery Kansas City DeCoursey Creamery Co. Ice Cream eaven\Yorth DeCoursey Crcamery Co. Cream, Cottage Cheese Butter, ?\lilk, Ice Cream Pratt Pratt Dairy Products Co. Cheese MISSO liRI .Taplin Community Dairy Products Co. Cottage Cheese, Butter ::Elk, Ice Cream Kansas City Aines .Farm Dairy Co. Cn)am, Chocolate :.fik Cottage Cheese, i\lilk Kansas City American Butter Company 1 Butter Kansas City Arctic Dairy l)roduets Co. Cheese, l\Iik (Dist. Only), lee Cream Kansas City The l\Ieriden Creamery Co. CreaTIl, Butter Springfield Patton Creamery Co. (Butter-Dist. Only), :\Iik Ice Cream Windsor Tastemark Foods, Inc. Cheese-Condensed 1 Ko plant facilties; compa.ny is a. trade name only. offces located In Kansas City, :\Ussourl.

____._ __ ____ ___._ . _ FOR.EMOST DAIRIES, IKC. 971 Initial Decision DISTRIBUTING SUBSIDIARIES &ateand ity Nam afcompany Pradu,cts ARKAXSAS Harrison Patton Creamery Co. ::iilk, Ice Cream Springdalc Patton Crcamery Co. Milk, Ice Cream MISSOIJm Brookfield Arctic Dairy Products Co. Ice Cream :Naryvile Arctic Dairy Products Co. Ice Cream Rolla Patton Creamery Co. 1.filk, Ice Cream West Plains Patton Creamery Co. ljJk Ice Cream WASHINGTON Carlin Creamery Co. Cheese, Butter W. F. Huhn & Co. Cheesc, Butter KANSAS Salina DeCoursey Creamery Co Ice Cream In the year enu.ed March 31 , 1954, American Dairies and its subsidiaries had net sales of approximately $24 000 000, with a net profit after taxes, of approximately $740 000, anu. a net ,,-orth of approximately $6 700 000.

The above sales were ae-counted for as follows: market milk products, approximately 11 781 000 gallons; cottage cheese, 2 601 000 Jbs. ; ice cream, 2 833 000 gallons; butter, 9 759 000 Ibs. ; cheese 730 000 lbs. ; marga.rine, 1 831 000 lbs. tnd manufacturing milk 446 000 Ibs.

The subsidiaries of American Dairies distributed fluid milk and ice cream through t.he following routes in August 1954: MILK --'l'''le 'ilf.. ""m Dec lapnY ;:s c I(;n Leavenworth, Kn,ns3s-- Salina, Kansas 6 . Patton Creamery Company:

Springfield, l\:lissourL_ Arctic Products Company:

Kansas City, Missouri_ ?lIaryville, Missouri_ Brookfield, J\lis.'ouri- - - -- Aines Farm Dairy Company:

Kansas City, MiSSOUfi_ Community Products Company:

::1missouri- Joplin, - - - - - - I----Tasternark Dairy Company: Paragould, Arkansas_ Total_ 81 I , , 972 FEDERAL TRADE COMMISSIO DECISIO Initial Decision GO F.

(b) Market Conditions.

The only evidence in ihe record with respect to the ma.rkets served by Americ.an Dairies ancl its subsidiaries, other lha,n the foregoing tables, consists of tho Fedoral Milk lIarket Order figures introduced by respondent as to the Xeos11o V l1Jey Order area served by the subsidia.ry, Community Dairy Products Co., Joplin, lUissouri. "\Within that area, including the Kansas Counties of Allen, Bourbon, Cherokee, Crawford, Labette Iontgol1ery, K eosha, and \Yilson, and the 1\:1i880u1'i Count.ies of Barton Jasper, 1\e,Ytoll, and Vernon, respondent' s share of the area sales rose substantially oe-tween ID54 anc11D57 when t.hey levellecl oft', the percentages of which ate as follo"ys: 18:1+-1C.:1% 18;);)-18.20/ 10;;0-22.

1957-23.

1955-2J.

1039-25.

It is urged by counsel for respondent, in their proposed Jindings that the record fails to est.ablish that the acquisition of .American Dairies, representing respondent's entry into a.areas wholly new to it had any adverse e1Ject upon competition, and further, that the evidence failed to prove that, beCfll1Se of respondcnes over-all size and growth, this acquisition had, or has, any ref1sonable probability of suhstantial1y lessening competition, On the other hand, it. is contended, by counsel supporting the complaint, that the metropolitan areas surrounding the cities 'where the manufacturing and distributing subsidiaries of .:\american Dairies operate, constitute the section of the COUli.try where the acquisition of American by Fore.most has had a.n adverse effect upon competit.ion in each of' the line.s of commerce indicated in the foregoing paragraphs, It is not be1icTcc1 that there is sl1fI-icrent evidence. in the record to support a finding that the acquisition of Ame.rican Dairies has a probable tendency t.o les )en competition, or tends to crea.te a monopoly in any section of the country. This is not n, horizontal acquisition since respondent, Foremost, had never sold flJY of tile' products handled by . american Dairies, in any or the areas served by --\.american Ditiries, prior to the acquisition. TheTc is no evidence with respect to market shares, or who the eompetitors of American Dairies were at the time of the acquisition; nor is there any evidence as to the probable effect of the acquisition upon any competition which may have thereto lor existed, or upon competitors which engaged in a similar line of business in the respective areas, FOREMOST DAIRlES , INC. 973 n.i4 Initial Decision In view of the ahove, and for reasons which wil be more fully discl1sspd in the conclusions herein, it is round that there has been no substantiallesspning of compet.ition or tendency to create a monopoly gro,,ing- out or the acquisition or Amp,rican Dairies by Foremost. 7. The DeSoio Ice Cremn Division of Armour and Company, J/tri,nenpolis, Jli' JW8ota.

(a) The Acquisit.ion.

On August fI , 1054:, Foremost acquired cert.ain assets of the DeSoto lee Cream Division or Armour and Co. , in )finnea.polis, 1finnesot, (somrtimrs here-in after referred to as DeSoto), fur approximately $362. nnn. No manufacturing plant was involved in the acquisition bnt t here "\\"('rcinc1udecl more than 400 ice eream cabinets used in the bnsine.ss, and two distribution points, one in J\finne,apolis, )linnesota nel one in J\Iobri(lge, Sout.h Dakota,. The assets of DeSoto, as of J UIlC 5, 1054. amounted to a.approximately $335 000 in the :Minneapolis location. and $78 000 in the Mohridge, South Dakota locat.ion. Prior to the acquisition, Depot.o had ico cream sales of approximat(2l 0;) OOO gallons a year, with an additional novelty business ilwlnc1inp' the" E kimo Pie fI'anchise, of 260 000 gallons a year. The Eskimo Pie franchise "as exercised through jobbers in the States of \:VisC'or: ill, :.Iilll1Csota, and Xorth f nd South Dakota. (b) )Inrh:ct Conditions.

FOTemost had made it,s init.aJ pntry into the Minneapolis area in the m:llllfflctnre and sale of ice cream by the acquisition of the lvp Tce Cream Company, on ThIay 31 , 19;5- . Prior to that. acquisition, Ives was png-aged in the manufacture and sale of ice cream in the Minnea.poli :1l"f'f1. vi'ith distribution branches in St. Cloud, Brainerd and Fergus Falls Iinnesota. Subsequent to the DeSoto acquisition, its assrts \ve.re combined wit,h the lves operation in i)linneapoIis. rves volume. of sales of ieo cream, in Jfinneapolis, was approximately 300 000 gallons annually. The record does not show the volume of sftles of De80t,0 in the J\Iinne,apolis aref1 alone, the DeSoto sales being spread over it \fide area, including parts of :Minnesota west of J\linneapolis flnd Iobl'idge, South Dakota. The only evidence of other ice ere.am manu-facturers located in the area surrounding I\Jinneapo1is, or J\fobri(lge, consists of testimony of offcials of Foremost \vho es6matecl that the,re 'were about twelve to fifteen ice c.remn manufacturers lo eat,eel in t.he combined )Iinneapolis-St. Paul area, and that t.he position of the aCCluirecl companies, combined, could not lutVl" been higher than fou:rth in thfl(-, area, \with f1 small percentfgc of the total volmne sold. This would inc1nc1e the business of it firm known as Vander- Bio s. Inc. , of St. Paul, ,"\which ,yas acquired by respondent in 974 FEDERA TRADE COMMISSION DECIBIO;SS Initial Decisiol 60 F.

August 1954, but which 'vas not engaged in interstate conunerce. There is not sufcient evidence in the record upon which to base a finding as to an adverse COlllpetitive effect upon competition as a result of the acquisition of the DeSotQ Ice Cream Division of Armour and Company, even when consider.red with the acquisition of the I ves Ice Cream Company, in lay 1954.

8. Bridgeman-Russell Company, Inc., a ,11innesota CorprYration Duluth, Minnesota.

(a) The Acquisition.

By an agreement dated October 8, 1952, Foremost ac"Iuired the outstanding capital stock of Bridgeman-Russell Company, Inc. (sometimes hereinafter referred to as Bridgeman-Russell), by exchanging two and one-quarter shares of its common stock.k, and one and onequarter shares of its preferred stock for each outstanding share of the Bridgeman-Russell stock. At the same time, Foremost also acquired four wholly owned subsidiaries of Bridgeman-R.ussel1, namely, the Minot. Creamery Company, a North Dakota corporation, Jocated at Minot, North Dakota, where it had a butter plant; Purity Dairy Company, a North Dakota corporation, located at Mand,m, Xorth Da,kota, where it operated a fluid milk, ice cream and butter plant; United Dairies, Inc., a :Minnesota corporation, located at Duluth Minnesota; and Dairyland Creamery Company, a South Dakota CQrporation, located at Sioux Falls, South Dakota, 1,here it had a tiuid Inilk and ice cream plant.

Prior to the acquisition, Bridgeman-Russell operated combination fluid milk and ice cream plants at Duluth, 1finnesota, and Jamestown North Dakota (where it also processed butter); and a processing plant for fluid milk at Virginia.a, Minnesota. In addition, it had distribution branches for fluid milk, ice cream and butter at Ashland 'Visconsin, and Carrington T ort.h Dakota. Its principal sales of fluid milk, ice cream and butter "\Were made at ,vholesale in the following sales areas: Duluth and Virginia" :Iinnesota; Jamestown, North Dakota; and I-Iancock l\fic.higan. In 1951, Dridgeman-Russell had consolidated net sales of approximately $11 .375 000, total assets of approximately $.3 0(;9 000, and net income of approximately $102 000. Of the total consolidated net sales, approximately $3 255 000 was in fluid milk, $2 210 000 in ice c.rea, , and the balance in butter, poultry, meats, frozen foods, eggs and cheese jobbing.

Dairyland Creamery Company, a wholly owned subsidiary of Dridg.eman-Russell, accounted for approximately $340 000 of the above ice cream sales, and approximately $225 000 of the fluid milk , ! FOREMOST DAIRIES, INC. 975 944 Initial Decision sales. Its sales were made in the Sioux Falls, South Dakota, area, at wholesale only.

Purity Dairy Company, another wholly owned subsidiary, accounted for approximately $281 000 of the above ice cream sales and approximately $530 000 of the fluid milk sales, such sales being in the Jiandan and Bismarck, North Dakota., ate-as. Another wholly owned subsidiary, United Dairies, Inc., with wholesale and home-delivery retail fluid milk sales of approximately 230 000 in the Duluth Iinnesota, area accounted for the balance of the above total fluid milk sales.

:Minot Creamery Company, another wholly owned subsidiary, manufactured butter at :VIinot, North Dakota, and sold substantially all of its produds to the parent company.

(b) :\Iarket Conditions.

Prior to the acquisition, Foremost was not in competition with Bridgeman-RnsseII Or any of its subsidiarie,s. The record contains no evidence of market conditions in any of the markets where Bridge- Jnan-Russell Company sold its products, with the exception of testimony of offcials of the respondent. Jlr. Herbert L. N ordal, the former President and General Manager of Bridgeman-Russell, and bter a Division lanager for Foremost, now retired, testified that the main eompet.Hours of Bridgeman-HuBsell in Duluth, IHinnesota, were four major co-op organizations, namely: Land O'La.kes Cnmmery of Minneapolis; Twin Ports Creamery of Superior and Duluth; Arrowhead Cooperative, with headquarters in Duluth; and Floodwood Creamery at Floodwood, :Minnesota, which is forty miles northwest of Duluth; that these four cooperatives were in cnmpetit.ion with Bridgeman- Russell in both fluid milk and ice cream in the Duluth area; that Land Lakes not only sold ice cream at wholesale, but also sold through a number of retail stores known as the Bridgeman stores, selling both milk and ice cream. In 1057 during the course of the hearings, he testified that the principal, or the J:rgest, seller of fluid milk in the inunec1iate Duluth area was Twin Ports. He rated Bridgeman-Russell or the Foremost operation in Duluth, fourth or fifth in fluid milk, and prolo;lbl)' second or third in the sale of ice cream. In addition, he said there are about a dozen small distributors in the Duluth area. He namerl other distibutors in the a.rea around Ashland, ,Visc.ousin, as Beatrice and Sealtest. In the N OltJ1 Dakota area J amestown Iandan and Minot, he listed the Fairmont Creamery Company and the J\.fanclan Creamery, and also a cooperative in that area which he identified as Equity Union Co-op of Aberdeen, South Dakota. 976 FEDERA TRADE COMMISSION DEcrSIOKS Initial Decision 60 F.

With respect the Sioux Falls operation, he testified that Dairyland Creamery, a subsidiary of Bridgcman-Russell, sold fluid milk and ice cream in Sioux Falls in competition with Crescent Creamery Company, later acquired by Foremost.

There is not suffcient evidence in the record upon which to base a finding as to an adverse effect upon competition in any of the areas ,vhere Bridgeman-Russell did business, as the result of its acquisition by Foremost.

9. (/Tescent Oreamery Co., a South Dakota OOJ'PU1' a.t-ion, Sio' Falls, South Dakota.

(a) The Acquisition.

Pursuant to an agreement dated August 26 1953, Foremost acquired all of the ca,pital stock of Crescent Creamery Co. (sometimes hereinafter referred to as Crescent), together with 3,11 of the capital stock of SllUlY Side Dairy, Inc., and Frosted Lockers, both South Dakota corporations, in a stock exchange for the common and preferred stock of Foremost. Included in the acquisition were two wholly owned subsidiaries of Crescent, IIa:i,arclen Dairy, Inc., an Io a corporation located at Hawarden, Iowa, and Bell' , a South Dakota corporation which operated a retail store in Sioux Falls, South Dakota. Prior to the acquisition, Crescent was engaged in the processing and distribution of fluid milk at wholes,tle and horne-delivery retail and the manufacture and sale of ice cream in the Sioux Falls, South Dakota, area. The wholly owned subsidiary, IIawarden Dairy, Inc. with a fluid milk plant located in Hawardcn, Io"a, distributed fluid milk, ice cream, butter and cott.age cheese, all of which, except fluid milk, it received from its parent, Crescent Creamery, in the IIa,';arden Iowa, area. Prior to tho acquisition, the total assets of Crescent Creameryanel its subsidiaries were approximately $407 000 with a net worth of approximately $348 000.

(b) Market Conditions.

At the time of the acquisition of Crescent, Foremost was operating Dairyland Creamcry, in Sioux Falls, which it had acquired in 1952 as a part of the assets of Bridgeman Russell, hereinbefore mentioned. After the acquisition, the Dairyland and Crescent opern,tions 'were consolidated in the Crescent Plant, which continued as the Foremost plant in Sioux Falls. It was estimated that the combined operation accounted for about 25% of the tot,,) ice cream s"les "nd 30% of the fluid milk sales in the Sioux F"lls "rea in 1957. \VhenForemost acquired Crescent in 1953, there were four other concerns competing in the Sioux Falls fluid milk market. They were: Lakeside, Guerllsey, Terrace Park, and North American , .

FOIlE OST DAIRIES, INC. 977 944 Initial Decision Creameries. The last-named concern had entered the market from its plant in Paynesville, J\Iinnesota, approximately 150 miles away. In 1954, the year after the acquisition orth American was sold to Fairmont Food Company which has continued to sell at wholesale in the Sioux Falls market. The Guernsey Dairy came into the. Sioux Falls area, in 1947, and had a processing plant in the suburbs of Sioux Fans, sening both at wholee"le and retail in the Sioux Falls market. It sells some milk to hyo supermarket chains in Sioux Falls, X at-ional Food Stores and Super Value Stores.

The Lakeside Dairy also had a processing plant in Sioux Falls and engaged in both wholesale and retail distribution. In 1958, it enlarged its plant and has Bxpanclecl its operations. It. sells its milk to most of the st.orcs of the supermarket chains in the Sioux Falls area, including the Sunshine St.ores, t.he Piggly-'\Viggly supermarkets and Super Value Stores.

Terrace Park has a processing plant in Sioux Falls, and has conthllecl to expa.nd its operations since thc elate of acquisition of Crescent by. Foremost in 1053, not only in Sioux Falls proper, but principally in the surrounding territory in South Dakota, southern Jlinnesota., and north.hwcstern Iowa. It supplies all of the supermarket chain stores in Sioux Falls, exc.ept two of the five Sunshine Stores. There are approximately t"lycnty to forty c.chain supermarket stores in the Sioux Falls area, which has a population of about 65 000. Most of the c.chain stores in the Sioux Falls area carry at least three brands of milk, and some have. four. The dairy that makes the original contact and distribution in these chain stores is the one that usually gets the larger space.e for display. Foremost milk is in most of the chain stores in Sioux F,dls and usually shares the space equally with the other len,ding brands, La.keside and Terrace Park. Some exceptions may be found in some of the stores in the surrounding area, \vhe1'e, since the acquisition of Crescent, it has established distribution points, including Mitchcll, Huron Webster, Flanc1reau, PieITe and Beresford, South DaJwtn,; and 'V orthington linnesotn. There is evidence in the record indicating that a. cooperative organi zation known as the Equity Lnion, which did business in Aberdeen South Dakota, from which it made distribution in )litchell and Jamestown, and later in l\fadison, South Dakota, attempted to get into the Sioux Falls market, and were there about six months and were not successful and pulled out. 1\1'. Homer J. Lyon, District Manager in the South Dakota area for Foremost, testified as to the reason Equity pulled out of Sioux Falls: "failed to get their product moving off the 978 FEDERA TRADE COMMISSION DECISIONS Initial Decision GO F. shelves nf the stnres they got intn." He also. tesWied that Equity has been trying to. sell nut to. Foremnst.

In Sioux Fails, Foremnst has a fluid milk plant with a daily eapacity nf 7 000 ga1Jnns of milk in an eight-hour day. In 1958 it spent approximately $27 000 fnr lncal advertising in the area served by its Sinux Fails plant.

The only sales figures in the record which would show the relative position or market share of Foremost in this genera.l area at the time of the acquisition, or as a result of the acquisition of Crescent, indicate that the tntal fluid mil, sales of Foremnst fnr the year 1953 was 072 746 pnunds, which was 40.2% nf the total fluid milk snld in the Sioux Falls-Mitchell Federal Milk Marketing Area. At that time Foremost was not selling in the )'Iitchellmarket, so that the universe figures for the Sioux Falls-:vitche11 area, taken from the Federal Milk Order, do not give an accurate picture of the situation at the time of the acquisition in that it wnuld appear that Fnremost wnnld have had an even larger market share in the Sioux Fa.lls area ;-11one. From the foregoing facts, it is found that the acquisition of Crescent Creamery Company by Foremost, it alre,ac1y having a dairy business in t.he Sioux Flllls, South Dakota, area, mny have the e.flect or subsbtntially lessening competitloll and tending to ( reate a monopoly by Foremost in the fluid milk market in that section of the country which y be described as the Sinux F 11s, Snuth Dakota, market. It is certain that, as a result of the acquisition of Creseent, Foremost was placed in a much better competitive position than it occupied prinr to the acquisition. It and two other independent dairies, Lakeside Dairy and Terrace Park Dairy, lutVe tho majority of the chain stora supermarket business. That is to say, these three dairies sell in a jority nf the chain store superm rkets, with the bulk nf the stnre shelf space in those stores. The record does not show 'tv which of these three has the largest distribution in those chain stores. The combined economic power of the respondent, with these two other companics, is indicated by the inability of the Equity Uninn Cre meries, the cnoperative from Mitchell and Aberdeen, and nther points outside nf Sioux Fa.1ls, to break into the Sioux Falls market beca,use of its inability to get a share of the shelf space in the leading chain stores, the shelf spa,co occupied for the most pali by Foremost, Terrace Park and Lakeside.

The evidence submitted by cnunsel for the respnndent as to the fitcheJl area, in the study nf the enmpetitive situation in the market is irrelevant and immaterial because Crescent was not in the 1:tchell FQRE),0ST DAIRIES , INC. 979 0+4 Initial Decision market at the time it was acquired. It only got in there as a result of expansion subsequent to the acquisition. Consequently, all the testimony in the record with respect to competitive conditions in the Mitchell market, and the other markets outside of Sioux FRUs except Ha warden, Iowa, lllust be disregarded.

10. PortsIJwuth Pure llIillc 001npany, an Ohio Oorporation, Portsrn01dh, Ohio, and Pure Milk Company, Inc., a Kentucky Corpomtion Ashland, Kentucky.

(a) The Acquisition.

In 1\'ovember 1954, Foremost acquired certain assets of Portsmouth Pure Milk Company and Pure :VIik Company, Inc. The consideration paid was $25 000 in cash and 5 000 shares of Foremost common stock. After the ""quisition, Foremost began to supply PortSlouth from the Ashland plant with both milk a.nd ice cream. In the spring of 1956, respondent sold the Portsmouth milk business to a local competitor.

(b) Market Conditions.

There is no evidence as to the size of these acquisitions, the character of their ma.rkets, or the nature and extent of the competition with respect to either the Portsmouth or Ashland locations. It is contended by counsel for the respondent that competition increased in that arell to such an extent that respondent had to abandon its Portsmouth milk business.

11. Old Ihmdred, Inc., a Oonnecticllt OO1'poralion, South bury, C onnecticu.t.

(a) The Acquisition.

By an agreement related August 21, 1953, Foremost acquired the ont. standing capital stock of Old Hundred, Inc., located at Southbury, Connecticut, for 18)81 shares or F.oremosfs common stock and 8 000 slmres of its preferred stock, plus $120 000 in cash. Prior to the acquisition, Old IIundred was engaged in the manufacture and sale of ice cream in the Southbury, Connecticut, area. Its plant there had a r:apacity of approximately 2, 000 000 gallons of ice cream a year, and the plant was operating at close to capacity. In 1952, the year before the acquisition, Old Hundred had sales of approximatc1y $2 300 000; tobll assets of approximately $817 000; and net profit for that year of approximately 8128 000. It sold its ice cream principally to the \. & P stores and First National stores in that flrea. (b) J\Iarket Conditions.

There is no eviclcnee in the record with respect to the nature and extent of the market, or the competitive conditions in the ice cream business in and around Southbul'Y at Lhe time of t.he acquisition of 719 603--64-- 980 FEDERAL TRADE CO:1:LVIISSION DECISIONS Initial Decision 60 F.

the Old Hundred Company. Consequently, no finding can be made as to the competitive effect of this acquisition. 12. illoanalna Dairy, Ltd., and Rico lee C1'ea,, Company, Ltd. IIawa.iia1' C'orpOJ'Clttons, Honolulu, Oahu, FI a'waii. (a) The Acquisition.

On October 29 , 195:- , Foremost acquired from I-Ifl\vaii Dairy Industries, Ltd., the outstanding ca.pital stock of A:foanalua Dairy, Ltd. , and Rico Ice Cream Company, Ltd. , for 25 657 shares of Foremost com- Inon stock valued at $5M 456.

Prior to the acquisition Ioanalua \vas engaged in the processing t111cl sale of fluid milk in the Cit.y of IIonolulu; and Rico 'vas engaged in the manufacture and sale.of ice cream in the same area. :.Ioanalua had It fluid milk plant, processing about 1 500 gallons a day. Its sales for the first six months of 1953 amount.ed to $871 000, on which it showed a loss of approximately $24 000. It had at that time a deficit of about $3 000, Rico s annual volume of ice cream was approximately 100 000 gallons a year. Prior to t.he acquisition of JIoanaJlla and R.ico, Foremost had entered Ha\\aii by the acquisition of the Campos Dairy Product.s, Ltd., hereinbefore mentioned in connection with the acquisition of International Dairy Supply. (b) :V1arket Conditions.

Subsequent to these acquisit.ions, the l\IoanalllR milk operat.ion was integrated with that of Campos Dairy Products, Ltd., and since that timo Foremost has constructed a modern dairy plant from which it distributes fluid milk on the island of Oahu, which has a population of about :353 000 persons. The princ.pal competitor of Foremost on the island of Oahu was Beatrice Foods, a ,yell-known processor of milk in the 1Jnitecl States. There 'were also four or five slImll dairies, and two ice cream competitors on the island. It is estimated by ,J. R.. Lindley, Vice President of Foremost, that the combinat.ion of Campos and :Moanalua gave Foremost approxiluately 30% of the fluid Illilk business on the island of Oahu. The acquisition of :Moanalllfl und Hico by Foremost has a tendency to lessen competition ancl to c.reate a monopoly in fluid milk and ice cream in the Honolulu market and throughout thc isbnc1 of Oahu.

13. TVtden1'ire, Inc., an Alabama Corponttion, Sylacauga A laomna.

(a) The Acquisition.

On August 12, 1953, Forenlost acquired 1Vidcmire, Inc., located at Sylacauga, Alabama, in a transaction -whereby Foremost acquired all of t.hc outstanding capital stock of ,Vic1emire s for 5 807 shares of Foremost common stock and 2 555 shares of Foremost preferred stock. FOHE':vlOST DAIRIES , IXC. 981 944 Initial Decision Prior to the acquisition, IViclemire s was engaged in the manufacture and sale of ice cream in the Sylacauga, Ahtbama., area, and (11so sold to the military installation at Ft. Benning, Georgia. It had pre viously had iee cream contracts "itll one or two militar:y installations outside of Alabama.

(b) Market Conditions.

There is no evidence in the record as to the size of IVidemire, its market, its competitors, or any other proof relevant to the issues involved in this case.

14. Southern Jlaid, Inc., a V-virginia Corporation, BrUitol, Vir-ginia; and the Welch Milk Company, a West ViJ'ginia Corpora:ion, Welch TVe8t V iTginia.

(a) The Acquisi tions.

On September 16, 1952 Foremost acquired the outstanding ca.pital stock of Southern Iaid, Inc., located at Bristol, Virginia'1 and the IVe1ch l\iilk Company of \Veleh, \Vest Virginia, in the same transaction, for 16 000 shares of Foremost preferred stock ancl45 OOO shares of Foremost common stock.

Prior to the acquisition, Sout.hern )Iaid 'nls engaged in the processing and distribution of fluid milk at wholesale and home-delivery retail, and in the ma.Julfacture and sale of ice cream. Its principal sales areh,S were in and around Richlands, Bristol and Appa.lachia Virginia; Blueileld, 17union ancl1Villiamson, ,Vest. Virginia; Johnson City and Kingport, Tennessee; 1ld jUiddlesboro, Kentucky. Prior to the acquisition, IVelch l\:flk Company was engaged in the processing and distribution of fluid milk at wholesale and at homedelivery retail, and the manufacture and sale of ice cream. Its principal sa.les area were in and around .McDowell, ",Vyoming and Logan Counties, 1Vest Virginia.

Southern Jaid opcnlLed t,,"o combined milk and ice cream plants one at Bristol, Virginia, and another at Bluefield, 1Yest Virginia" as well as a processing plant for lllilk alone at Kingsport Tennessee" from which they made deliveries as outlined above. In addition its sales at these plants, Southern laid also operated distribution branches at Johnson City ancl Greenville, Tennessee; at Pikeville and l\iiddlesboro, I\:entucky; and at Richlands and Appalachia, Virginia. ",Velch operated a single plant, processing milk and manufacturing ice cream at 'Velch, 'Vest Virginia. It had no distribution points. After the acquisition, Foremost continued to process milk at the Bristol, vVelch and I\ingsport plants, bnt not at the Blncfielc1 plant which became a distribution branch.

, .

982 FEDERAL TRADE COMMISSION DECISIOC'S Initial Decision 60 F.

In 1951 , Southern Maid had total sales of approximately $4 417 000 with total assets of approximately $1 246 000, and a net income of approximately $83 000.

Included in the above sales were sales of ice cream by Southern Maid with a value of approximately $694 000 in the Bristol, Virginia J ohn80n City and ICing-sport, Tennessee, areas, and fluid Inilk sales of approximately $1 400 000 in the same area. During t.he same period, Foremost had ice cream sales in ohnson City and Kingsport of $450 000, and fluid milk sales in that same area of approximately $863 000.

In 1951 Welch had net sales of approximately $1 693 000, and total assets of a.approximately 85;- 000, and net income of approximately $66 000.

(b) 1arkct Conditions.

The record doos not contain suffcient evidence to determine Foremost' s and Southern l\ftdd's shfLre of the market in fluid milk or ice cream in the above area alone at t.he time of, 01' subsequent to, the acquisition. It does, however, contain suffcient. evidence with respect to respondenes sales and the universe figures to determine its ma.rket share in fluid milk for the years 1956 through 195D in an area somewhat larger, namely, that area covered by what is known as the Appalachian Federal )filk Order, the principal population centers in this area being Bristol, Kingsport and Johnson Cit.y, Tennessee, and Appala.china, Virginia" Such evidence indicates Foremost's share of the fluid milk market in this area for these four years to be: 1!),,)6-26.30/ 1957-25.

1938-24.

1959-23.

Since the universe Ligures used in the computation of the above percentages cover an area considerably larger than the area served by the respondent, it "Yroulc1 appeal' that the respondent's market share of the fluid milk market in the area served by it would be even larger than the percentages shmnl above.

An offcial of the respondent testified that its principal competitors in the general arefL referred to above ,rere Pet J\lilk: Sout.hern Dairies, Darden and perhaps Coble Dairy, located in Lexington, North Carolina.

A second relevant. Federal lilk Order is t.he Blueficld Order which covered the territory including ,Ve1ch and Bluefielc1, ,Vest Virginia. and Richlands, Virginia, all of which "Were supplied by plants or branches of Southern Maid, or by rhe ,Ydeh Iilk Company prior FOREMOST DAIRIES, IXC. 983 944 Initial Decision to their acquisition. The Foremost share of the total sales in the Bluefield Order area for the years 1957 to 1959 was as follows: 1957-32.

1958-32.4% 1D5D-33.

The foregoing facts, while not conclusive, due to lack of volume of business of competitors in the market areas covered, indicate that there is a reasonable probability of the acquisitions substantially lessening competition in the sale of milk and ice cream in the sections of the country covered by the Appalachian and Bluefield Orders. 15. Oentral Dairies, Inc., a South Oarolina Oorporation, Oolumbia South 0 arolina.

(a) The Acquisition.

Pursuant to an agreement dated February 13, 1951, Foremost acquired the outstanding capital stock of Central Dairies, Inc., located at Columbia, South Carolina, by an exchange of stock, whereby one share of Foremost common stock was exchanged for caeh two outstanding shares of Central Dairies stock.

Prior to the acquisition, Central Dairies was engaged in the manufacture and wholesale distribution of ice cream in the Columbia, South Carolina, area. For the year ended .June 30 , 1950, Centra.! Dairies had net ice cream sales of approximately $168 000 and total assets of approximately $145 000. It showed a net loss for that year of approximately 85 900.

(b) Market Conditions.

In 1950, Central Dairies had 10% of the ice cream market in the Columbia, South Carolina, area. Fore,moses initial entry into that area occurred in 1950, vdlen it acquired the Bluebird Ice Cream Company: which had one retail store in Columbia" South Carolina, subsequently closed.

Foremost' s sales of ice cream1l1 in the Columbia, South Carolina trading area increased from approximately 228 000 gallons in 1952 to approximately 256 000 gallons in 1955. The sales of Central " ere made solely in and around Columbia, and the only way in which it was engaged in interstate commerce was in the purchase of certain raw materials from outside the State. At the time of the acquisition the plant opentted by Central was in diffculties because of an insurmountable sewerage problem, since the anticipated availability of city se"\Ycrs did not. rnaterialize, and Foremost "\YflS compelled to stop J1t:nl1faduring at the Central plant and supply the area fronl other sources. In view of the size, character and questionable future of this acquired corporation it is concluded that there vms not suffcient effect Initial Deci,;ioll 60 F.

upon the relevant market to make a finding as to t.he competitive significance of this acquisition.

16. Gunn Ice Oream Oompany, a Florida Oorporation, Pensacola FloTicZa.

(a) The Acquisition.

On l\iarch 1, 1952, Foremost purchased various assets of the Gunn Ice Cremn Company of Pensacola, Florida, not including real estate for $128 125. The acquisition included four ice cream route trucks 180 ice cream cabinets, and other personalty of the Gunn Ice Cream Company. Foremost then leased the Gunn plant for $200 a month. In 1950, the volume of business done by Gwm in ice cream was approximately $140 000. The ice cream was sold in Pensacola and the surrounding counties of Santa Rosa, E-scambia, Okalaosa and VValton with some sales in nearby Alabama. Capacity of the Gunn plant "as approximately 3 000 gallons per day, but it did not operate at full capacity throughout the year. After acquisition, the plant was converted to a distribution branch supplied "ith ice cream, first from respondent' s Jacksonville plant, and then from Sylacauga, Alabama. Milk supplied from the Tallahassee plant was also added to this branch operation.

(b) Market Conditions.

:Estimates were introduced in support of the complaint attributing 20% of the ice cream market served by ihe Gunn Ice Cream Company prior to the acquisition, namely, Chipley, Pensacola, Panama City and j\farianna, to Gmli, and 5% to respondent. It is contended by counsel for the respondent, and it is appa.rent their contentions are sound, that Chipley and Marianna arc sman towns, 110 and 130 miles respectively, northeast of Pensacola, and Panama City is 100 miles H, part of the Gnnnsoutheast of Pensflcola. These markets were not trading area, and not a part of the common 1THtrket of Pensacola. Foremost did not se,n ice cream in Pensacola" or the remainder of GU1111 S real trade a.rea prior io the acquisition. There is no evidence.e in the record to indicate who the competitors were in that market. any event, the transaction is de minimis and no finding is lTilde as to the eiIeet upon competition in that area.

17. GTaharn s Dai1'Y, Inc., a Florida Corporation, llfiami, Florida. (a) The Acqllisition.

On JIarc.h 6, 1852 Foremost purchased certain assets, not including the plant, of Graham s Dairy, Inc.: located in :\Iiami, Florida, for $:19 700, and agreed to purchase 550 000 gallons of rav\ milk per year from the seller. Graham continued as a producer, supplying Foremost in that area. It sold a certified, high quality, premium price raw milk -which was not pa.steurized but bottled under strict health FORE:\10ST DAIRIES INC. 985 044 Initial Decision supervision. Florida regulati01ls require that a dairy selling certified milk, bottle aU of its milk on the fann where it is produced. (b) Market Conditions.

Graham s volume was approximately 1 200 to 1 300 ga.1olls of fluid milk per day, and its sales in 1950 amounted to approximately 8558 000. After the acquisition, Graham s business '\\'0.5 integrated with that of the plant owned and operated in :\hami by the respondent at the time of the acquisition.

In 1950, responclenfs sales of fluid milk in the :Miami area amounted to approximately $1 550 000, which sales amounted to about 8% of the )Iiami market, while Graham\;; amounted to about 3%. In view of the fact that, during this same year, just prior to the time of this acquisition, the leading distributors of fluid milk in the l\:fianli area were Borden and rcArthur, each with 20% of the fluid milk market in that area; I-lome :Ilk with 18 ; and Land Q'Sun with 10%, it is concluded that the acquisition of Graham s would not have suffcient competitive impact upon the 1\Iiami fluid milk market to give Foremost a decisive competitive advantage.

18. Banner Dairies, Inc., a Texas Corporation, Abilene, Texa.. (a) The Acquisition.

On .May 28, 1953, respondent acquired a11 of the outst.anding capital stock of Banner Dairies, Inc., Abilene, Texas (sometimes hereinafter referred to as Banner), in exchange for 21 525 shares of I1 oremost common st.ock and 24 610 shares of Foremost preferred stock. Ineluded in the transaction were five affliated subsidiaries which held title to, and in turn leased to Banner, real and personal property used in its milk and ice cream business. ,With t.his acquisition, Foremost obtained milk processing plants located at . bilene, Brownwooc1 :Micllancl and San Angelo, Texas; an ice cream Inanufacturing plant at Abilene; combination milk a.nd ice cream dist.ribution branches at distributionOdessa, Big Spring and Eastland, Texas; ,md milk points at I-Iaskell, Hal11lin and COle111an, Texas. In 1952, Banner had fluid mi11e sales of approximately $2 790 400 and ice cream sales of 8642 700. In addition to fluid milk and ice eream, Danner also sold c.ottage cheese and butter. (b) J\larket Conditions.

After the acquisition, Foremost converted the processing plants at l\Iidlancl, San Angelo and Brmnl\yood to distribution points, supplied from Abilene, bec.cause the volume of the Danner plants at those points was insuflicient t.o support costs unless concentrated in a single plant. Prior to the acquisition, Foremost was in competition with Ramler at Abilene where it distributed ice cream from its Fort \Vorth factory. 986 FEDERAL TRADE COMMISSION DEmSIONS Initial Decision 60 F.

Foremost first entered the Abilenc market in 1946 when it ac.quirell the Pangburn Ice Cream Company ,with plants in Forth \V orth and Abilene. The 1932 combined icc cream sales of BfUlner and Foremost, in Abilene, runountecl to approximately $730 000, about equally divided between the two concerns. Abilene. in 1930. \Yas a city of approxima.tely 70 000 people, and in 1953, pr lmbly h c1 a popuh;tion of (;0 000.

It is not clear from the record just \vhat other competitors ,,-ere in the A.oileno market at the time of the acquisition of Banner by Fore- Inost. There are a number of clulin stores in Abilene and ForenlOst milk is sold in all of them except aile chain, the Safeway Stores, which apparently handle, their mvn milk. At the time the testimony " taken in this case with respect to the Abilene market, in Iarch ID60 there were eight companies competing for the fluid milk market in Abilene. Two of these compaines had processing phnts in Abilene (Foremost and Borden), the latte.r having acquired a processing plant there about the same time that Foremost acquircll Banner in ID;,);J. Other companies selling milk at wholesale in the Abilene market and the approximate dates they entered the market are as follows: Oak Fanns has served Abilcne c-usiomers with fluid milk frolll its Dallas plant, 180 miles away, since IDi54, including its own affliated st.ores known as "Seven-Eleven; the t,yO stores of tllc B & B Parkway Chain; the two stores of the Super-Duper Chain; and the four stores of the Thomton Super r arket C1min. Lrunar Creamery has been selling fluid milk in .Abilene only sillce 1050, t.ransporting its milk from its Paris plant. 20:5 miles fnvay. II sclJs to a1l five st.ores of the, "::1': System SupenmlTket. chain in Abilenc.

Cahell supplies fluid milk to the Abilene market from its Dallas pla.nt, and has been in that market since 1932. In IDGO it sold in that area entirely through its own ")linit :Markets. Borden has already been mentioned. It :3el1s fluid milk both at retail and ,yholesale, and sells to the fiye. stores of the ': 2\1"' System Supermarket.

l\ictzger, an independent with plants in Dallas and San Antonio entered the Abilene ll1ilk market from its Dallas plant about 1053. It sens fluid milk only to independent or inc1iyichmlly mnled stores. It has from time to time sold to some of the chain stores, but was unable to retain thel11 as customers.

Ganely Crefunery, from its processing plant in S:ln ngeJo, Texfls 03 miles n\-ay, entered the Abilene market about the SHJne. time that Foremost acquired BaJlnCl'. It maintains a distribution branch in ,) FOHE).IOST DAIRIES ) IXC. 987 !H-4 Initial Decision Abilene from 'which it sells fluid milk at both wholesale and retail home delivery distribut.ion. In addition to Abilene, it sells to customers in Dig Spring and Odessa where Banner also sold prior to its Hcquisition. In Abilene, Gandy serves practically every chain store outJet, including the five Xauors drive- in stores located in the outskirts of the city, and is probably the second largest milk distribl1tol'. Chain store fluid milk distribution in Abilene is divided as Tallows: oremost serves 17 chain store supermarkets, as follm 1: System Stores, 5; Thornton, 4; Fun, 2; A&, P, 2 (now 1); B &, B Parkway Stores, 2; Super-Duper, 2. The other distributors in the 1V1 System Stores are Gandy, Lamar and Borden. In the &, B Parkway Stores, Gandy and Oak Farms are competit.ors. In the two Super-Duper Stores, the competitors are also Gandy and Oak Farms. In the foul' Thornton Stores, Oak Farms is the competitor. In the Furl' Food Siores, Gandy is the competitor. The only chains not served by Foremost are Safeyray and the five Nabors drive-in stores. The record docs not. contain any pvidence as to the volume of fluid milk business done by any of the competitors of Fornl11ost, either in t.he retail Or wholesale trade. IIowever it is (Iuite apparent from the testimony of offcials of respondent that in the Abilene market it had a distinct advantage over its competitors, Foremost milk being sold in more chain stores thrtn any 'Of its competitors. The only real independent, )Ictzger, has been unable to ma,int,ain chain store distribution. Except for Borden, all other Foremost competitors must ship milk from distant points, varying from D5 to 2D5 nliles. The only competitor that has a processing plant in Abilene, the Horden Company, does not have the chain st.ore distribution, its sales being confined to one chain of supermarkets.

18. Tennessee Dairies, Inc. , a texas C'o1'J-lOrati()n, Dalla.s, TexCt8. (n) The Acquisition.

On September 9, 1952, Foremost aC(Iuired all the outstanding capital stock of Tennessee Dairies, Inc. , located in Dallas, Texas, paying therefor approximately 18,125 shares of Foremost common stock 250 shares of Forcmost prefprred stock, and agreed to payoff c1eocntllres held by Tennessee stockholc1el'sin the. amount of 8101 000, or a total consideration of approximately 8800 000. Prior to the acquisition, Tennessee Da.iries Inc. (hereinafter sametimes refe.rrec1 to ns Tennessee), was engaged in the processing and distribution of fluid milk at. "wholesale and at homp- c1eJivcry retail in Dallas, Longyi( , Kilgorc IcKinney Sherman \Vaco, San Antonio Terrell :incl Sulphur Springs. Texas: and in selling at its Dallas plant to distributors located at Odessa and Corpus Christi ft.nd at various ,, 988 FEDERAL TRADE CO:.1:MISSION DECISIOKS Initial Decision 60 F.'l'. towns in the Rio Grande Vaney, Texas, who picked up the milk in their own trucks and distributed it in their own trade territories. also sold a full line of other dairy products, including cottage cheese and butter.

In lD50, the Danas :\Ietropolitan area had a population 'Of approxinmtely 435 000; and in lD60, it had 660 000. (b) Market Conditions.

1. As to Dalh1s.

In lD5l, Tennessee had fluid milk sales in Danas of approximately 332 000 and a total of fluid milk sales for the entire area., including sales to distributors, of approximately $6 52D 000. In addition, it had sales of approximately $4 2D5 000 at its Danas plant to rlistributors \vho picked up the milk at the. plant in their Q'vn trucks. Foremost' s initial entry into the Dallas marketing area occurred in lD45 by the acquisition of S'Outhwest Dairy Products C'Company which had an ice cream plant in Danas. In lD50, Foremost had 10% of the ice cream business in the 1metropolitan Dallas market area. At the time of the acquisition, Tcnnessee operated approximately 70 retail milk trucks and 25 wholesale milk trucks in the Dalla.s ma.rket. Prior to the acquisition, Tennessee did not sell milk either directly 35 milesor through distributors in the Fort 'Vorth market (about from Dallas) where Foremost had a milk plant at the time of the acquisition. The only area in which Tennessee and Furemost were in competition was in the San Antonio market. Respondent still supplies the Danas milk market from the plant which it acquired from Tennessee in 1952. At t.he time the testimony ,vas taken, in 1959, respondent 'vas planning to move into a new plant eonst.ructed in Dallas. -/tt the time of the acquisition, Tennessee sold to a number of supermarkets and chain stores, including the A&.P , and Tom. Thumb groups. Foremost has continued to sell its It also sells to al1 5 .Wrigleymilk t'O all 33 A & P stores in Dallas. stores, and all 7 'V orth Food Stores in Dallas. These ate new chains which were not in Dallas at the time Tennesse,e 'vas acquired. Foremost has lost. some business in the Tom Thumb Stores, formerly sold by Tennessee, but it. sold in 1;5 or 16 supermarkets of tlwt chain at the It also sells to 9 of the Iinyardtime the testimony "as taken in 1959. Stores and a number of other A-G Stores, as did Tennessee. Also it sells to the 6 stores of the local Hodges chain and is the on ly supplier of those stores. Respondent does not sell to any of the J(roger Stores ("Wyatt), 30 in number. In lD57, it was estimated that Foremost ranked third in the sale of fluid milk in the Dallas market fireR. The principal compet.itors of Foremost in the Dallas 11firket area in 1859 were the follmving firms:

FOREMOST DAIRIES, INC. 989 D44 Initial Decisioll a. Schepp, a local family-mnlec1 concern, is e.ngaged in both ,wholes"le "nd retail fluid milk distribution, and in selling to the Dallas pub- 1ic schools. It has been in Dallas for a number of years. There ate no accurate figures with respect to the vallUne of lllilk business done by this firm, but it is estimated, by sales offcials of the respondent, that it is approximately 8 000 gallons a day. It sells its milk to the A-G (Associated Grocers), and Chi!. Ch"ins. It advertises in radio, television and newspaper media. It recently acquired another locallnilk company, Triangle Dairy.

b. letzger is another local concerll in Dallas, operating processing plants in Dallas and San Antonio. It has been in business in Dallas for many years, selling its fluid milk at "holesale and retail. Although there is no accurate infornlation as to the 1'olnnle of business done by this firm in Dallas, it is estimated by the same offcials of the respondent as being approximately 17 500 gallons a. da):. In Dallas it sells milk to all the stores of the Minyard chain; all of the stores in the TomThnmb chain; more than half of the stores of the ,V or(h Food chain; some of the st.ores of the A & P chain; and some of t.he stores of the A-G chain.

c. Bluff View is a. small single-plant, family-owned 111ilk company, engaged primarily in retail home delivery distribution, hut ,,.ith some resta.urant accounts in Dallas. It has been in business for a number of years and specializes in Guernsey milk.

d. Beverly Hills Dairy is another small dairy, engaged both in wholesnJc and retail distribution, sening fluid milk to stores primarily in glass gallon jugs. It f0I111erly sold a full line, but recently has eoncentra.tecl on the large size container. e. Oa.k Farms, a. 'wholly owned subsidiary of Southland Corporation, is reputed to be the largest independent dairy in Texfls. It now operates processing plants in Dallas, Fort ,Vorth and IIouston and has a number of branches in other markets. It was established in the emly UJ30' , with its original plant in Dallas. It sells fluid milk only at wholesale and to the Dallas school systenl in Dallas, but it engages in retail home delivery distribution in Fort ,Vorth and l-Ionston and some smaller lnarkets in East Texas. In recent years, it has extended its distribution to a. number of cities outsjde of the Dflllas market area, jnc1uding Sherman, Sulphur Springs, Longview, ,Vaco San Antonio, Abilene, Lubbock, Odessa and Big Spring. It is estimated that it operates 32 milk routes in Dallas, with an estimated gallonage of 40 000 gallons fl. day bebyeen its Dallas and Fort ,Vorth plants. It actively advertises, employing hi1H)Qards, dealer signs radio, newspaper and television, and owns and operates a chain of Initial Decision 60 F.

Seven-Eleven:' drive-in supermarkets. It cnrries, in acldit10n to milk, such items as bread; canned goods, and similar items. It is estimated that there are about 75 to J 00 such stores in the DaDas area. It sells milk on a wholesale basis to a number of supermarkets in Dallas, including 30 A & P Stores, 5 stores of the ,Vrigley Supermarket chain, some of the 15 or 16 Tom Thumb Supcrmarkets, nnd many of the A-G Stores.

f. Another milk distributor in D.L1Jas is Cabell' , which has opemted a processing plant in Dallas since early in the ID:- s. It originally sold milk only at wholesale, but a few years ago it began reta,i1 distribl,tion, and it "Iso sells to the Dallas schools. It h"s extended its distribution to surrounding towns in recent years, including Big Springs, Abilene, Midlm1d and Odess" in the ,Vest, and Tyler "nd Longview in East Texas. It is estimated that its volume of gallonage in the Dallas arefl is 24, 000 gallons pel' day. It also, lilm Oak Farms has a chain of its o"n drive-in snpermarkets known as Cabell "::Iinit JIarkets." At the time testimony 'ras taken, there 'rere a.about 70 such markets, of "which 32 vmre in the Dallas area. It also docs a suustantial milk business with other retail stores in the Dallas area, selling to 30 of the ,Vy;tt Stores (part of the Kroger Ch"in), all 5 of the 'Yrigley Supermarkets and some of the 15 or 16 Tom Thumb Stores and to some of the A-G Stores.

g. The Jcre Dairy, an individually owned and operated fluid milk plant in Grand Prairie, between Dallas and Fort 'Vorth, started in business in 1956. It is engaged exclusively in 'ivholesale milk distribution and has c.oncent.rated on the glass gallon jug line. It sells milk to some of the A-G Stores and a, number of independent markets particularly of the drive-in category ,,,which specialize in gallon jugs. h. A.ll-Jersey is a single plant milk company, individually mrned with its pIRnt in Greenville, Texas, about 60 miles from Dallas. began business in 195r.1 and sells milk at reta.il in the immerliate neighborhood of its plant, but it also now ha.s a wholesale ml1k business in Da.llas. It sells to flu of the Tom. Thumb Supermarkets and advertises in Tom Tlllunb:s advertisements in newspapers and on the radio.

i. Lamar Creamery1 operflting fL single. processing pbnt at Paris Texas, 105 miles from Dallas, is owned by tt milk producer cooperative association. It first began to distribute milk in Drlllns about 1854 and since 1952 has extended its milk distribut,ioll in East Texas in the Beaumont, I-Iol1ston and Port rtlllr area, "ith some distribution in San Antonio and in .Abilene, Sweetwate.r, J\Iidlanc1 and Odessa in 'Vest Texas. It hauls its packaged milk in refrigerated trailer trucks FOREMOST DAIRIES, INC. 991 944 Initial Decision to Dallas, where it is t.ransferred to wholesale route trucks. It nm\' operates about five of such trucks in Dallas. It supplies some of the G Stores ancl the three Branson Stores.

j. Borden has operated a milk processing plant in Dallas for many years, and is engaged in retail and 'wholesale milk distribution there as well as selling to the Dallas school systern. In Dallas, it sells to. all of the 'Wrigley, .1. &; Pam! IVortil Stores, to one of the Minyard Stores, and to some or the A-G and \Vyatt Stores. At one time it sold milk to the Tom Thumb Stores, but since those stores have been featuring the All-Jersey line, it is not doing so. k. Vandervoort's is a long-established, family-mvned dairy ",\'itll its only fluid milk plant located in Fort IV orth, where it engages in both wholesale and retail milk distribution. about 1955 it started to distribute milk in the Dallas market, where it now has a wholesale llistriblltion throughout the city. Its retail operation, however, is limited to the ",ve t side 01' Dallas. In recent years it has extended its milk distribution to the surrounding area. It is estimated that its present volume is about 6 300 gallons per day. It advert.ises quite extensively, using television and radio.

1. Boswell of Fort 'V orth has been in business for it long time and it is estimated that it is the largest milk seller in the Fort \V'Orth market. Very recently, in lD59, it e.entered the Dallas market. It was acquired in 1957 or 1858 by Beatrice Foods, which had not previously sold in Fort \Vorth. It is estimated that Bos",velrs volume was approximately 32 000 gallons pel' day at the time it ",vas acquired by Beatrice. Initially, it solieitcd retail customers on the ",vest side of Dallas, and it nmv operates three retail routes in that market. It. also has some wholesale customers in the western patt of the cit.y and in 1960, started extensive solicitation for ",vholesale business throughout the, rest of the Dallas ma.rket.

Foremost, Oa.k Farms, Borden and )Ietzger seem to be the principal suppliers of supennarket ch8.in stores in the Dallas market. In some of the stores, Foremost has more shelf space, than the others; in other store.s, Oak Fnrms is the leading bra,nel; in still others, Oak Farms and Bardell each have mo1'O space than Foremost.; and in some stores :.Ietzger has more shelf space. In the \Vrigley Stores, Foremost has more spflce than any of its three competitors, which are Oak Farms Cabelrs nncl Borde,n. Tn ,Yorrh Food Stores, served Ly Foremost :.Ietzger and Borden, Foremost has marc spnce than the other.rs in 'one store; in another, :Metzger and Foremost have equal space, more than Borden; and in another, Foremost and J30rden have equal space ancl 1\Jetzger has less. In eight of tho nine )'Iinyarcl Stores serveu by ____ 992 FEDERAL TRADE COMMISSIO DECISIONS Initial Decision 60 F.

Foremost, :Metzger is also a supplier. In the nint.h, Metzger, Borden and Foremost share the space equally.

Dallas Ims been included \with Sulphur Springs, TerreH, :VIcKinney and Fort .W orth in the North Texas Federal Iilk Iarketing Order issued by the Dairy Division of the Agricultural :.\Iarketing Service for a number of years. That Order is applicable to the Texas Counties of Cooke, Collin, Dallas, Delta, Denton, Ellis, Fannin, Grayson Hupkins, IIunt, Johnson, I\:aufman, Lamar, Parker, Rockwall and Tarrant. For each year, starting \with 1056 , the "C. A. has pub- Eshed comparable universe figures as to the total milk sales in this area. In addition to these figures, respondent' s total sales within the area are nUlintained by the :Market Administrator and are L1so a part of the record, so that its share can be determined as follows: FLUID ::Iron (gallons). Nol' th Texas Federal 7Iarket Order in area sales 'Universe I .Foremost I Foremo YCfiT i percentage 1956-------__-------- ~12 16. 21957-------- -------- 57 398, 372, 9, 002, 726 15.1958--_--_----------- -------- 57 86" 698 ' 8 754 897 15.1959__ ----------- 58, 997, 651 9 264 494 15. It will be noted that the 1959 volume of sales in the entire area servee! by Foremost increased from 8 754 807 gallons in HJ58 to 0 264 404 gallons, and that its total percentage of the entire area gained from 15.1 % to 15.7%. The record docs not contain similar figures for the earlier period, from 1953 to 1955, so no comparison can be ma.de from the time of the acquisition to the time the testimony was taken. IIowever, t.he total volume of milk sold by the two Foremost plants (Dallas and Fort 1Vorth) regulat.ed by this Federal Order, whether sold in or out 'Of the North Texas Order area, ha,s increased since 1956 and the volume sold in 1959 exceeds any previous year: 1956-10 472 600 gallons J957- 564 500 gallons 1938-10 5fi9 200 gallons 1939-10 830 400 gallons 2. As to San Antonio.

Foremost' s initial entry into the San Antonio marketing area also occurred in 1945 with the acquisition of Southwest Dairy Products Company which had a fluid milk and ice cream operation in that area. Tennessee came into the market about 1951 whe,n it had fluid milk sales there amounting to $242 500, and Foremost had sales in that FOREMOST DAIRIES, INC. 993 944 Initial Decision market in 1951 of $3 082 800. It is estimated that, at that time Foremost's share of the milk lnarket was 15% and Tennessee s was 1.2%, so that as of 1951 Foremost lutd approximately 16.2% of the fluid milk market in San Antonio.

The San Antonio market is not quite so large as the Dallas market. In 1950, it had a population of about 408 000; and in 1960, it had 575 000. Approximately eight concerns, including Foremost, accountcd for 100% 'Of the milk sales in 1950. Ono of the concerns that was in business, :Highland Dairy, "was acquired in 1956 by Carnation which had not previously sold fluid milk in San Antonio, and other dairies have come into the market.

The largest dairy operating in San Antonio is the Knowlton Dairy, a single plant, family-owned concern, long established, which is engaged in wholesale and retail fluid milk distribution. It sells to a11 of the supermarket chains in San Antonio, including 18 H. E. Butt Stores, the 20 Handy-Andy Stores, the Model Markets, 18 Piggly- Wiggly Stores, the I.G. , and Red and White groups. Probably the second largest distributor of milk in the San Antonio area at the time of the acquisition was Borden, which sold to a number or the chain stores in that area at that time and has continued to do so.

Oak Farms, from Dallas, entered the San Antonio market aoout 1955. It now operates a distribution branch in San Antonio and sells fluid milk to a11 28 of the Lone Star Drive-In Stores, a chain similar to the "Seven-Eleven " stores, which are not operated in San Antonio. Respondent formerly sold to these Lone Star Stores, but was replaced by Oak Farms.

Jfetzger, the independent concern discussed above in connection with the Dallas market, operat.es a processing plant in San Antonio where it sells fluid milk at wholesale and retail It is estimated that its volume is approximately 7 900 gallons per day. Other small dairies operating in that area are Baker, which sells fluid milk mostly at retail home delivery; Cream Crest, which has abandoned retail milk distribut.ion and is selling exclusively at wholesale, and sells to the two principal chains in San Antonio, the 18 H. E. Butt Stores and the 20 Handy-Andy Stores, as ,,-ell as to the Model Markets; the Faulk Dairy, which is estimated to have had 5% of the San Antonio market in 1950 operating 18 cash-and-carry st.ores and , a,specializing in the sale or milk to the public in glass gallon jugs which was sold to the Producer s Cooperative Associat.ion in 1959; :Milam Dairy, a family-owned, single plant fluid milk 'Operation in San Ant.onio ,,-which has been in bnsjness since 1940. and sells both at 994 FEDERAL 'TRADE COMJHISSION DECISIONS Initial Decisioll GO F, wholesale and retail; Rio Vista, a family-O"yned, single plant milk distributor with a retail home delivery business and also wholesale distribution; Escobeda Dairy, which operates a single plant in San Antonio, and sells at both wholesale and retail distribution, with its business principally on the west side of the city where the 1Iexican population resides; Superior Dairy, which operates a single plant in Austin, 75 1niles from San Antonio, and which began to sell milk in the San Antonio area in 1958, with an estimated gallonage of approximately 26 000 gallons pel' day in that area; Schepp, a Dallas concern hereinbefore mentioned, which first started selling in the San Antonio area, in 1955; Carnation, a multi-plant concern operating in a, number of areas 'Of the' Gnited State. , having entereel the San Antonio market about 1956 when it acquired the Highland Dairy, hereinbefore mentioned, a local concern which at that time ,vas estimated to have had 15% of the milk market. Carnation still operates (he Highland plant in San Antonio and distributes fluid milk at both wholesale and retail. R.respondent has continued to sell milk in the San Antonio market. from the plant it acquired in thc Southwest Dairy Products acquisition in 1 , selling both at wholesale and retail. It sells milk to the 18 H. K Butt Stores; 7, but not all, of the stores of the Model Market chain; and to some of the LG. A. and Red and Whi(e group stores. The H. E. Butt Stores and the lhudy-Andy Stores are the two principal chains in t.he San Antonio nlarket. Respondent docs not sell to 'luy of the 20 Handy-Andy or (0 any of the 18 Piggly-vVigg1y Stores or to any of the 28 local Lone Star Drive-Ins, although it formerly enjoyed some of this business.

In the 18 Ii. E. Butt Stores in San Antonio, seTyed by Foremost i\Iolt.on, Crcfnl1 Crest and Borden, respondent has more shelf space in two of the stores than its competitors (-J07o and 35%. respect.ycly). In the 7 San Antonio :Iodel Iarket.s, served by ForenlOst, it has more shelf space in 5 of these stores than its competitors, l\1:olton, Cream Crest and Borden (40%), and in the sixth store it shares: equal space with Borden (30% each), while )Iolton and Cream Crest have 20;c each.

According to the figures furnished by the Federal )Iilk l\Iarket Administrator for Bexar County, in ,which San Antonio is located including all Federal military reservations, facilities and installations located there, respondents volume of milk sales "within that area increased from 2 576 600 gallons in 1953 to it high of 2 07:2 700 gallons in lD55, a.nd then declined to 2 448 :200 in 1959. During that same period, the market overnll grew from a total of 15 2:hG OOO gallons in 1953 to approximate)y 20 ;"43 OOO gallons ill 1959. cts n result: rp- FOREMOST DAIRIES, I 995 044 Illitia! Decision spondent's percentage of sales of the total market declined from 16. in 1953 to 16.6% in 1954, increased to 17. 3% in ID53 and then declined each year thereafter until10,jO when it 'Yas 12. 1%. 20. Phenix Da;/'y, a Texas Oorporation, Ilouston, Texas. (a) The Acquisition.

Pursuant to agreement dated July 5 , 1932, Foremost acquired a.ll of the outstanding capital stock of the Phenix Dairy, located in I-Iollston, Texas, in exchange for 28 000 shares of Foremost common stock plus 10 000 shares of Foremost preferred stock. An additional $275 000 was paid for certain real property. Foremost obhlined a milk processing plant in H011ston and an ice cream manufacturing plant at EI Campo, Texas (about 75 miles soutlnvest or IIouston). Prior t.o the acquisition, Phenix "\as engaged in the processing and distribution of fluid milk at 'wholesale 'and retail home delivery in the I-1o11ston, Bay Town and ,Vharton, Texas, areas (all within 60 miles of I-Iouston), and at retail dist.ribution in thc Cleyclanrl, Texas area and the distribution of ice cream in the I-Iouston nd El Callpo Texas, areas.

In 1951, Phenix had fluid milk sales in IIouston, Texa::, of 85 455 000 out of total fluid milk sales of $5 048 800, ami ice cream sales in Houston of $;j4 100 out of it total of ice cream sales of $384 200. In the smne year, Foremost had fluid milk sales in the lIollston area in the amollnt of $1 492 200 and ice cream sales in the Houston area of $798 900. (b) :\Iarket Conditions.

In 1950 , Phenix had 1570 of the fluid milk market in the J-Iollston Texas, a.rea., and Foremost had 1070 of the fluid milk market in the same area a.nd 15% of the ice c-cream market. In addition to the fluid nlilk and ice cream sales, hexeinbeiore mentioned, Phenix sold butter of approximately 805 000 value in 1051. Foremost' s initial entry into the I-Iouston market area. occurred in 15 by the acquisition of Southl\est Da,iry Products which manufactured and sold ice cream in that area, as well as in the San Antonio trea. hereinbefore mentioned, and in Fort ,V orth Iyhere it processed and sold fluid Jnilk, and in Dallas, Texas, where it sold ice cream exclusively. It distributed flnic1milk at other points in Eflst 'J'exas, including Clcburne, and ice cream in HlUltsyilleand Beaumont, Texas and in Shreveport, Louisiana, "\here it also sold fluid milk. In 1947 Foremost acquired the Ietzger Dairy, it local fluid milk dist.ributor in Houston. In 1048 it acquired F & J\ Dairies and, in 1040 the business of L. B. Fish, both located in Houston, Texas, and engaged in the sale of fluid milk in the Houston market area.

719-603--C4-- __ 996 FEDERAL TRADE CO:MMISSION DECISIONS Initial Decision 60 F.

In 1950, according to estimates furnished by respondent, the relative sales positions of Foremost and its competitors in the sale of fluid milk and ice cream in the Houston, Texas, area "ere as follows: :V!ILK Competitors Compo orem. Percent PercentBorcien__ 50. 0 ------------ CarnatiOll_ 20. a -------- Phenix- - - - 15. 0 -- Others_Foremost- 1------ 10. Total- 90. 10. ICE CREA:vr Competitors Compo Forem. Percent Percent Borden_- 25. Ca.rnatioll 10. Swift- 15. Sun-up- 15. Ardcn- 10. Others 10. Foremost 15. Total- 85. The bulk of Phenix sales was of retail home delivery in glass bottes whereas, at that time, Foremost sold fluid milk principally at wholesa.le and had a large ice cream operation.

Foremost now serves the Houston market in both fluid milk and ice cream from its Phenix plants. Foremosfs wholesale distribution in Houston is primarily through smaller stores. Ho\vever, it does have some chain store outlets in the Houston area. At the time of the hearing as to this acquisition, in MlLrch 1960, it sold to all of the 12 A & P Stores; to the approximately 14 Super Value Stores, and to about 52 of the 60 " Tote-Ems. " Respondent docs not sell to some of the chain store supermarkets in the Houston area) including "\Veingart-en with 42 stores; thc Hinke-Pil1ot chain with 34 stores; and l\1innimax with 45 stores. As to the stores that are served in the three chains by Foremost, each store is also supplied by Borden and Carnation, two other nationwide, multi-plant dairy concerns, and the percentage that each firm has of the shelf space in these respective stores yaries considerably. In each of 5 Supcr VaJuc Stores, Foremost has , . , . FOREMOST DAIRIES INC. 997 944 Initial Dedsion the most space, ranging from 40 to 60%. In 2 of the 11 A & P Stores respondent has more space than either of its competitors, 45% in each case. As to 7 others, it shares equal space with Carnation, and the least space is held by Borden. In the remaining 2 stores, Foremost has less space than C 1Tnation but more than Borden, 35 and 40%, respectively. In 21 of the 52 u-Tote-Em Stores, it has only 10% of the space and in 26, it has about 5% of the space. In the other 5 store- , the Foremost share varies frolll 10% to 35%. The record contains figures showing sales of fluid milk by 11lcmbers of the South Texas Producers Association to Houston processors who in turn, seh in IIouston, Texas, and surrounding areas. According to these figures, the combined market share of Foremost and Phenix in 1952 was approximately 17%, as compared with the approximate 25% estimated by respondent's offcials in response to a questionnaire from the Commission. It is not known upon what figures the estimate was based. Probably the correct estimate 'Of the share would be somewhere between these two figures. At any rate, it is \veil established and the finding js made that, as the result of the acquisition, Foremost became the second largest distributor of fluid milk in Houston and the sUITounding area.

In addition to Borden and Carnation, hereinbefore mentioned, the following dairy firms had plants in Houston and were distributing fluid milk in the Houston area in 1960: Sanital)' Farm Dairy, Lone Star Westmoreland Dairies and ),el son )fik Company. Lone Star was purchased by Oak Farms, of Danas, in 1957. Lamar entered the market about 1958 from its Paris plant, 300 miles away. The Jere Dairy, in 1959, began to supply Houston from its Danas plant, 245 miles away. Of these concems Westmoreland Dairy and Sanitary Dairy, together with Oak Farms, make up the group of independent distributors, since they operate processing plants in 1Iouston. There are no figures in the record to indicate the volume of business done by anyone of these smaller independent dairies. There were two 'other Texas acquisitions of loca,J concerns which arc not being included in this finding. I-Iowever, a, reference should be made to them in order to get a complete picture 'Of the respondent's operation in the State of Texas. First, on January 1, 1951, Foremost purchased the fluid milk business of .:11'8. Tucker s Foods, located at Sherman, Texas. This firm processed and distributed fluid milk at \\'hole8o.le and home-delivery retail in the Sherman, Texa.s, area and had sales of approximately $500 000 durlng the year 1950. On June 27, 1952, respondent acquired the Taylor s Home Made Ice Cream Company, a Texas corporation, 10cateel at Fort ',,orth 998 FEDERAL TRADE COMMISSION DECISIOXS Initial Decision 60 F.

Texas. It was engaged in the manufacture and distribution of ice cremes in the Fort 'V orih area, and it was estimated that it had about % of tho ice crete11 market in that area in ID50. Foremost was already in that urea "dth both an ice cream plant and a fluid milk plant through the acquisition of South west, which Ilfd been acquired during 1947.

As a result or the acquisition of the three corporations, hereinbefore mentioned in this decision, namely, Phenix Dairy in I-IoustOll; Tennessee Dairies in Dallas and San Antonio; and Ba1l1Cr Dairies in Abilene, Foremost became a, substantial factor in the distribution of fluid milk and ice cream in four definite market areas or sections of the country: (1) Fort IVorth-Dallas, (2) Honston, (3) San Antonio and (4) Abilene. In addition, Foremost now has scattered distribution in other parts of Texas, namely, the Hio Grande Valley in and Rl'found Brownsville; "Test ern Texas, including Odessa Big Spring and SaJl Angelo; East Texas, including Tyler, Kilgore, Longvie,y and Sulphur Springs; Southeast Texas, in Beaumont, Port Art.hur and Orange; and further southeast in Corpns Christi, Texas. It sells in the principal metropolitan areas. However, there are S011E', metropolitan lLl'CnS in ",which respondent does not have substantial distribution: that is, Austin, the ca.pital of the State, located between San Antonio mc1 'Vaco (where respondent is represented) ; the far '\v88te1'n City of El Paso; and the panhandle cities of Amarillo and Lnbbock although respondent 110W has sonIe distribution in Lubbodc but not as a direct result of an acquisition.

COlUlsel for respondent, in their proposed finding, suggest that the hearing exmniner find that the Requisitions ill Texas of Foremost including Banner Da.iries, Tennessee Dairies and Phenix, hayc not 8.c1versely affected competition in any of the relevant lTHrkets. 'With special reference to the acquisition of Banner Dairies it is their contention that because of the increased number of competitors and the size and scope of their respective operations; the grmyth of the single-plant anel independent concerns and their success in selling to major supermarkets; the doubtful future of the acquire(l c.mnpany which they claim represented respondent's entry into a new area; and the absence of any record showing that respondent has more than mainta.ined its inherent position, the acquisition has not fl(ln'l'sely aiIectecl competition in the Abilencmarket. As to Temlcssec Dairies, they make the same contention, citing the' increa.sed number of competitors in the relevant markets; the. size nnd scope of their operations; the grmyth of the local inde.pendent concerns; t.their success in selling to supermarkets; the decline of rcsponc1- FOREJ\IOST DAIRIES, IKC. 999 D44 Initial Decision enfs post-acquisition market share in t.he respective markets served by it; and the further fact that the acquisitions represent respondent's entry into p"areas not previously served by it. Finally, as to Phenix, the same contention is made and emphasis is placed upon the entry of new competitors who have at least maintained the number of concerns competing within the market, notwithstanding respondent's acquisitions; the size and . scope of the operat.ions of competitors in general and of two 10cnl, single-plant concerns in the ma.rket; and the unusually domina.nt position and unique distribution system of the multi-plant concern (Borden) ,,,which vms the market leader prior to respondent's acquisition of Phenix; respondent:s inability to ma.intain the retail business of Phenix; its problems in holding the small chain supermarket representation that it had; and the probable post-acquisition decline of nmrket share suggested by the figures furnished by the South Texas Proclucer s Association records. It is recognized that, ,with respect to the Tennessee Dairies acquisition, a. portion of the business acquired was noncompetitive. Reference is made to the fluid milk business in the City of Dallas and the surrounding area where respondent had not been represented in the sale of fluid milk, although it had, for a number of years, sold ice cream in that lllarket. In this connection, it is believed that the ice cream business is complementary to the sale of fluiclmilk and that the acrluisition gave Foremost a competitive advantage by enabling it to offer a fulllinB of dairy products to its Cllstomers. However, in the San Antonio market, the acquisition was horizontal in that Forcmost sold both ice cre,am and fluidlnilk in that are,a prior to the acquisition. In some of the outlying tenitory in East Texas, and also in t.he Hio Grande Va1Jcy, respondent had not theretofore been represented, so that to some extent a portion of the Tennessee Dairies' business outside of San Antonio was not a horizontal acquisition. 'With respect to t.he Banner Dairy acquisition, h(n'I e\V , the acquisition was horizontal in the ice cream business in Abilene, but not in fluid milk in 1\bilene or its surrounding territories. 1-Iere a.gain the acquisition gave Foremost. a competitive advantage by enabling it to sell a full line of dairy products to its customer.rs. 'With respect to the Phenix a, acquisition in I-Iollston, Texas, it ",yas a horizontal acquisition in the sense that Foremost had been in that area engaged in the sale of both ice cream nnd fluid milk. It must also be eondlldecl t.hat Foremost c1idnot become the 1nrgest distributor of cll1iry products in the Dallas area as a result of the acquisition of Tennessee Dairies. I-Iowcver, it is a subst.antial factor and ranks second or third ,,-ith a percentage of the market above 15% 1000 FEDER.\L TRADE COMMISSION DECISIONS Initial Decision GO F. in tbe total metropolitan area of Dallas and surrounding c.count.ies. Its percentage of the total fluid milk and ice cream business in the Dallas market. probably ,,"us higher, due to the large number of chain state supermarkets to which it sells fluid milk.

Likewise, in the San Antonio market-, Foremost does not occupy the leading position. It is probably third as a result of the acquisition \with a percentage of the total market at. the present time ImH'r than it was at the time of the acquisition. I-Iowevel', in San Antonio, as in Dallas, Foremost has a substantial distribution of dairy products through the chain store supermarkets.

In the Houston market, again Foremost is not the leading distributor of dairy products but., as a result of the acquisition of Phenix Dairy, it became the secondlarge.st with a percentage varying somewhere between 17 flnd 25% of the market. ,Vhile its distribution in chain stores is not quite so strong in IIouston as it is in San Antonio and Dallas, Foremost is fl, substantial ractor in the distribution of milk through the chain stores. In view of the foregoing facts, little weight is given to the contention that responclent s share of the market had declined subsequent to the acquisition: or to the entry of sma.ller units in those respective markets. Furthermore, there is no evidence in the record that a.ny of the small lUlits entering the respective markets subsequent to the acquisition wns equal in size to the acquired company. It is also believed that the advantage that ForenlOst hft. , as a result of these llumerOllS acquisitions, over local competition in all of the four markets outhned, and the relative position it now has in those markets, gro,,-ing out of the acquisitions, or as a result thereof, has given Foremost a decisive advantage over all local competition and all equal position with Borden and Carnation in those areas, and that this overall advantage is sufficient to justify a finding as to the prob:lble adverse efiect upon competition in the market areas ,vhere the a.equired eompa.nies were engaged in the dairy business. Another factor which is very important is tlmt the addition of Banner: Tennessee and Phenix not only added to Foremost:s overall VOhUllC, but it contributed to Foremost's geogra.phical diyersification, thus protecting it more fully frolll local business declines in anyone area. According to l\:lr. Turnbow, President. of Foremost: this is an important factorgeogra.phical diyel'sification protects the company from local business dec! i ues. lie testified:

You must have diversification, not only of products, but c1iversification as to territory. One particular territory might be the ruination of ;your business if you happen to get into diffculties there. '" * * Yes, you spread the risk a little but that is right. (Tr. 1143J FOREMOST DAIRIES Il' 1001 944 Initial Decision 21. Golden State Company, Ltd. , a Delaw(".e Corporation, San Frnnc' l.co Oalif01'nia.

(a) The Acquisition.

Pursuant to an agreement of merger, approved by Foremost and the Golden State Board of Directors on December 3 1953, and ratified by the stockholders on February 25, 1954, effective February 26, 1954 Foremost acquired Golden State Company, Ltd. (sometimes hereinafter referred to as Golden State), located at San Francisco, California. The acquired company ,,,as merged into Foremost on a stock exchange basis, the new stock being issued to stockholders of both Foremost and Golden State. Golden State thus bemme a divi. sion of Foremost. In this acquisition, Foremost also acquired the following wholly owned subsidiaries of Golden State: Gold Medal Dairies, Inc., a cheese manufacturer located in J\1ontana, and l\faid of California, Inc., located in Vallejo, California, which processed and distributed fluid lnilk in Solano and Napa Counties. Prior to the a.acquisition, Golden State was engaged in the processing and distribution of fluid milk at wholesale and home-delivery retail and in the manufacture and sale of ice cream. It also distributed a full line of dairy and related products, including cottage cheese chedda.r cheese, eggs, butter, evaporated milk, dr;y milk, orange juice etc., operating substantially over the entire State of California. terms of dollar sales, it had the largest overall, dairy business in the State of California, and served most of the importa.nt communities in tlmt State. On a State. wide basis, Golden State ,,-as California largest fluid milk processor. From 1945 throllgh 1953: Golden State tcquired 18 milk and ice cream concerns in different parts of California., and Gold Iedal Dairies, Inc., a manufacturer of cheddar cheese located in l\:Iontana. hereinbefore Inentionec1. In 193:), its net s ties exceeded $120 000 000; its net income was approximately $1 36fJ 000; and it had assets amounting to approximately $32 000 000. Its volume of sales o.f fluid milk was approximately $4-3 000 000 and of frozen desserts, including iee cream, approximately $15 000 000. At the time of the acquisition, Golden State had processing plants in San Francisco, Oakland, Sa,crrunento, K ewman, Santa Barbara, Los Angele Riverside, Fresno, San Jose a,nd Salinas, California, as ,veil as two dry milk plants in Humboldt County and a cottage cheese and dry milk plant in Los BH.11os California.

(b) Market Conditions.

At the 6me of the acquisition, Foremost was in competition with Golden State in the Alameda. Contra Costa Milk Iarket through the prior acquisition of Diamond Dairy of Oakland, in February 1952 1002 FEDERAL TRADE C02vDnSSION DECISIOKS Initial Decision 60 F. T. and in the R. A. Shuey Creamery in December 1952, also of Oakland both engaged in the distribution of fluid milk. It \Vas also in competition with Golden State in the San Francisco, San l\Iateo and Santa Clara fink farkets through the prior acquisition of Marin Dairymen s )111k Co., Ltd., sometimes here,inal-eI' referred to as J\Iarin-Dell '1'which respondent ha, c1 acquired by an agreement of J\iay 1 , 1953 through exchange of stock. In these four markets, Golden State volume of fluid milk sales in 1953 amounteel to L1 847 033 gallons "which was approximately 30% of its total fluid milk sales in the State. Foremost's sales of fluid milk in the same areas in 1953 were 8 040 263 gallons.

In 1053, GoJdcn State had 20.2% of the fluid milk sales in the San i\iateo marketing area, 15.4% of the San Francisco market.ing area 2:2. % in the Santa Clara marketing area, and 22% in the Alamecla- Contra Costa marketing area.. In the lnst named area, Foremost was distributing fluid milk through facilities which it had acquired from the Shuey Creamery and the Diamond Diary in 19,)2, as hereinbefore indicated.

\lso in 1953, :.farin-Dell had 9.5% of the fluid n"lilk sales in the San Francisco marketing area, and Foremost had 12.8%. COlnbining those percentages ith the Golden State 15.4% ,""ould give respondent a.approximately 38% of the fluid milk sales in the San Francisco marketing area as a result of the acquisition. Like\vise, in the Santa, Clara, marketing area, in 1953 , :L:Iarin-DelJ had 2.8% of the fluid milk sales, Golden Stale had 22% and Foremost had 4:2%, or a total of approximately 29% of the Santa Clara fluid milk market came under' the control of Foremost as a result of the aC(luisition.

In 1953, Foremost had 3.9% of the fluid milk sales in the Alameda- Contra, Costa mfLrketing area through Diamond Dairy and Shuey Creamery facilities, and Golden State had 22%, so that as a result of the acquisition, Foremost obtained control of approximately 26% of the fluid milk sales in that marketing area. After the acquisition of Golden State by Foremost, many changes were made in the operation of the acquired concern, including changes in management; overhauling t.he accounting system; increasing the average number of units per routc; establishing distribution centers; use of refrigerator trucks; changing advertising proc.edul'Ps; changing the advertising agency; modernizing the package; rearrangement of sales routes; automation and modernization of the equipment; etc. and as a result, the rate of earnings of Golden State increased from 05% in 1053 to 2.45% in 1054.

FOREMOST DAIRIES , INC. 1003 944 Initial Decisiqn Taking up first the competition in the Alameda-Contra, Costa marketing area at the time of the acquisition of Golden State in 1954, there were 22 competitors in that area, including Borden, t.he multi-plant nation-wide da.iry concern which operated a processing plant in that area and engaged in both wholesale and retail distribution, selling an annual volume of approximately 000 000 gallons, and having approximately 11.7% of the market of iluid milk in that area. It ranked t.third in the market at that time and is reported to have declined to fourth by 1955, although it had about the same share of the market. Carnation, another multi-plant, diversified company, operates one of its processing plants in the Alameda- Contra Costa market. It also has processing plants in Los Angeles, San Diego and Bakersfield. In 1D54 its share of the market in fluid milk in the Alameda-Contra Costa area was approximately 15%, which declined to approximately 14.4% in 1955. It ranked second to Foremost in both years. Another fluid milk distributor in the Alameda-Contra. Costa market is the single-plant company, Berkeley Farms. Originally serving only Berkeley and Richmond, it extended its distribution over the entire Alameda-Contra. Costn, market, and since 1952 it has entered the Santa Clara and the former San :Mateo market. Formerly, it was predominantly engaged in retail home delivery distribution, but in recent years it has sold at ,,-wholesale as well. It has increased its sales in the Alameda-Contra Costa, market from approximately 500 000 gallons in 1952 to 4 200 000 gallons in 1955. Its market share increased from 10. 5% in 1D53 to 12% in 1855 when it ranked third in volume of fluid mDk sales in that area.

As hereinbefore indicated, in 1954 respondent, having succeeded to the business of Diamond Dairy, Shuey and Golden State in the Alameda- Contra Costa market, had a market share of 25.6%. In 1955, it had increased its sales and its market share to 2G%. The. record contains fluid milk figures, Alame,cla-Contra Costa market, for later years which show ,1, downward trend in the volume of sales of Foremost in this arch, and its share of the market declined to approximately 22% iu 1958.

Some of the smaller inclependent. distributors have increased their ohune eluring this period of tim. , from 1954 to 1958, the principal increase being by the Cloverleaf Fanns ,which has its pla,nt located nt Stockton, California, and ,which has, since 1854, begun to sell in the Alameda -Contl"ft Costa lTwrket, primarily in retail distribution but some at. ,vholesale. By 1855, it had 2% of the fluid milk market in that area.

1004 FEDERAL TRADE COMlvnSSIOK DECISIONS Initial Decision 60 F.

Turning now to competition in the San Francisco, San JIateo and Santa Clarll markets:

1. The San Francisco market.

At the time or the acquisition, in February 1954, Foremost was already in the San Francisco market through the prior acquisition or JIarin-Dell in l\lay 1933 , as hercinbe,fore inclieatecl. At that time there \ycre ten companies selling milk in the San Francisco market. In addition to Marin-Dell and Golden State, there were Borden, Green Glen, Lucerne (Safeway), Spreckels-Russcll, Sun Yalley, Christopher Arden Farms, using the trade name "Arden-Dairy belle, Challenge (operating an acquisition or Bell-brook, as "Glen :Maid", supplying only the Purity chain of stores). Today, most or the foregoing concerns and Carnation, which entered the market in 1958, and Peninsula Creamery, which entered in 1955, are in the San Franciseo market competing ,with Forelnost.

'Yhen re, spondent acquired J\Iarin-Dell, in 1953, it became the second largest seller in the market, with a share of 22.3%, That same year, Golden State was third, with a market share of 15.4%, Thus the share of t.he combined yolnme of the two concerns which finally merged into Foremost was 37.7%.

In 190-:, the year that Foremost aCCJuired Golden State, its sales volume of fluid milk, combined with that of Golden State, had a market. share of 36.4%.

In 1955, respondent s share of the San Francisco market. ,yas 35%. During 195G, the San Francisco market was redefined by the State Regulatory Agency to inc1nc1e a part of "hat had been the adjoining San rateo market. Consequently, comparable figures are not available for the years after 1955.

2. The San Mateo market.

In 190;), when respondent acquired J\Iarin-Dell, there were 15 companies competing in the San 1\1:ateo milk market. In addition to l\larin-Dell and Golden State, the other concerns were: Baywood Dairy, Borde. , Clmllenge-Bell-Brook, El Camjno Creamery, Carnation, Arclen-Dairybel1e, Peninsula Creamery, Pier s Dairy, Toyon Creamery, Inc. , Lucerne (Safeway), Spreckels-Russell, Sun Yalley Dairy and Berkeley Farms. IVith the acquisition of Golden State in 1854, the number was reduced to 14, but in 1855 Beatrice, doing business a.s Iissions Creamery, entered the San lUateo market, as did Christopher, making 16 concerns at that time, Because the San Iateo market was redefined in 1956, and eliminated as of the beginning of 1957, there is no way to enumerate the competitors in the San l\Iateo area after the year 1955.

FOREMOST DAIRIES, INC. 1005 844 Initial Decision Borden, in 1953, had 21.5% of the San Mateo milk market. Although its gallonage increased in 1955, the market overall grew faster and Borden s sharedecIined to 21.4%.

Baywood had a fluid milk sales volume in the San Mateo market in HJ53 which represented 2% of the total; in 1955, its sales were 2. 1 % of the market.

The Challenge-BeJ1-Book combination had a fluid milk sales volume in the San :\fateo market in 1953 which was 4.5% of the market. In 1955, its volume, through the entry of its "Glen Maid" operation, gave it a share of approximately 5% of the market. EI Camino Creamery, a local concern engaged only in retail home delivery distribution, had a fluid milk sales volume which had a market share of 1.5% in 1953. It increased its slmre to a percentage of 1.6% in 1955.

Carnation, the well-knmvn, multi-plant concern, in 1953 sold 4. of the San Jllateo market, which increased in 1955 to 4.6% of the market.

The Arden-DairybeJ1e operation had fluid milk sales in the San 2\fateo ma.rket in 1953, 'thich had a market share of 7. 2%. In 1955 its market share was 4.7%. During that period it dropped from fourth to sixth rank in the market and was surpassed by Berkeley Farms and Challenge.

Peninsula Creamery, a local family-owned concern, v,:s engaged predominantly in retail home delivery distribution of fluid milk, but had some wholesale business. Its percentage share of the market was reduced from 10% in 1953 to 9.2% in 1955, although it increased its volume of BRles.

Pier s Dairy, individually owned and operated, a single- plant concern, is located in the San Mateo area. It started in business shortly before 19. , after its owner Im-d sold another dairy in :Menlo Park to Golden State. It was engaged in both wholesale and retail dist.ribution of fluid milk. It increased its sa.les in 1955 over 1953, but its share of the market declined from 7.8% to 5.2%. Toyon Crea,mery is another single-plant concern. Its sales in fluid milk declined from 1953 to 1955, and its share declined in the San Matco fluid milk market between 1953 and 1955 from 5.3% to 3.8%. Berkeley Farms entered the San Mateo milk market in September 1952 from its Berkeley plant in the Alameda- Contra Costa market. In 1953, it.s iirst full yellr of operation, it hlld1.4% of the new market. By 1955 it had increased it.s sales volume and its percent.age to 5% of the market.

1006 FEDERAL TRADE CO)YIMISSION DECISI01\ Initial Decision 60 F.

Spreckels-Russell served the San Mateo milk market from ils San Fmncisco plant at the time respondent acquired the Marin-Dell in 1053. It increased its volume in the San :Mateo market slightly in ID55 over 1953, but its share of the market declined from 4.3% in 1953 to 4. 1 % in 1955.

Sun Vaney Dairy, a single-plant concern, started by a former Golden State employee, first entered the San Mateo market about 1950. Bv 1955, its milk sales were 1.6% ofthemarket. Christopher Dairy Farms, a single-plant concern from San Francisco, entered the San J\latco market in 1955 and gained 1 % of the market that year.

In 1953 , the Iarin-Dell sales of fluid milk in the San Mateo nwrket had a market share of 6.7%. That same year Golden State ,,-as the second ranking concern in the market with a market share of 2. 2%, thus the two concerns ultimately acquired by Foremost had combined sales which were26.8% ofthemarket.

In 1954, Golden State s sales of fluid milk, combined with Iarin- Dell' , gaTc Foremost a market share of 25.8%. Foremost then became the largest distributor of fluid milk in the San Mateo market. In 1955, Foremost' s combined volume of sales of fluid milk through :lIarin-Den and Golden State gave it a market share of 27%. As hereinbefore noted, the San J\lateo milk market was redefined during 1956 so comparable figures are 110t available after 1955. 3. The Santa Clara market.

,Yhen respondent acquired J\Iarin-De1J in 1853, there were 13 concerns competing in the Santa Clara, TIlilk market. In addition to :\brin-Dell and Golden State, they ine-ucled: Borden, Challengc Bell-Brook, C,unation, Edehyeiss Dairy, .Arden-Dairybelle, Beatrice (aoing business as )iission Creameries), Pier s Dairy, Santa Clara Cre:nnery, Stanclnrcl Dairy, Lucerne (Safe\\"fiY), and Valley ::iilk Company. In 1835 three additional cono.e1'ns: Toyon Creamery Co. Spreckels- Hussen Dairy Co. and Berkeley Farm entered the market so there were then 16 competitors.

At the. time Foremost acquired JIarin-Dell in 1853, Borden was the second largest distributor of fiuidmilk in the Santa Clara, milk market behind Golden State with 20.6 % of the market. By 1955, although its volume h Hl increased slightly, its share of the market declined to 19.7%.

Cha.llenge-Bell-Brook Company also experienced a. decline in market share bel ween 1953 and 195;, of from 8.8% to 7.3%. Cn.rnation s share of the market \\"as reduced from 13% in 1953 to 10% in 1955.

FOREMOST DAIRIES, INC. 1007 944 Initial Decision Edehveiss Dairy, a locally owned, single-plant company, in the Santa Clara market, engaged exclusively in reta.il home delivery. increased its gallonage and also its share of the market from 1.7% to 2. 1 % in 1955 , as compared to 1953.

Arden-Dairybel1e s share of the market declined from 3.4% in 1953 to % in 1955.

Beatrice, Lhe well-knmyu, multi-plant concern, increased its sales 1'olumo from 1953 to 1955, and also was able to Inaintain its percentage of the market at 10%.

Pier s Dairy, a single-plant concern, increased its gallonage in 1955 O\-er 1953, and a.lso its share of the market from 3. ;':)% to 4.3%. The Santa Clara Creamery Company, another smaH, single-plant company, increased its sales of 11uid milk in gaHons and also its share of the market from 2.,)% in 1953 io 3.1 % in 1955. Sta,ndard Dairy, operating a single plant in the Santa. Clara market engaged predominantly in retail distribution, increased its sales SOlle- \ylmt and its share of the market remained 'ft . 6%. Another single-plant concern, VaHey JIilk Company, had 1.9% of the market in J 953 and increased that percentage to 2.4% in 1955. Peninsula Creamery, formerly in the Santa Clara, market in 1951 01' 1062 came back into the market the last month in 1954 and its 1D55 sales "ere 6% of the market.

The combined fluid milk sales of the three l1mvcomers io the Santa Clara rrmrket in 1955: Toyon, Berkeley Farms and Spreckels- gusscll accounted for 3.5% of the market in 1955.

At tho timo of respondent's acquisition of Marin-DeJJ in 1953, that concern had 7% of the Santa Clara milk market. Golden State, the largest seller, accounted for 22.4% of the market. Their combined volume was a 29% share of the market.

During 1954., the combined sales of Foremost and Golden State H(.counted for a Inarket share of 30.1% as compared to 29% in 1953. In 1955, the Foremost volume increased but its market share declined to 27.8%.

Summarizing the foregoing milk market figures, respondent' s market share, as a result of the acquisition of Golden State in 195 , in the Ala-meehl-Contra, Costa milk market wns approximately 25% of that market, it being the largest distributor of fluid milk in that area as a result of the a.acquisition. In the consolidated figures for the San Francisco, San Iateo and Santa Clara markets at the time of th( acquisition, respondent had approximately 31% of the 11uid milk sales and "'1'as also the largest distributor in that combined area. The total population of the foregoing ate-a was approximately 2 3'10 000. 1008 FEDERAL TRADE cO:v:vrrSSION DECISIOC'S Initial Decision 60 F.

In other markets \vhe1'e Foremost had not been representcel prior to the acquisition, as a result of the acquisition of Golden State in 1954, it succeeded to 22% of the Sacramento market; approximately 17% or tho Fresno market; approximately 9% or the Los Angeles- Orange market.s; 4,2 % of the San Bernardino- Ri versicle market; and 10% or the San Diego market. In all these nmrkets, respondent share of the market cledined in subsequent :years, with the exception of the San Bernardino- R.iverside market. The decline \vas slight in the Los Angeles-Orange market, and in the San Diego ma.rket, where respondent acquired a local dairy, lIage, having 9.5% of the market which combined with Gold State s 1.3% gave Foremost a total of 10.8% market slmre in 1954. In 1958, the share or respondent in the San Diego milk market was 9.7 %.

In 1955, Foremost, Borden, Picr s Dairy and Peninsuhlr had 62. of the fluid milk sales in the San fateo marketing area with the balance or the fluid milk sales divided among 13 concerns In 1955, Foremost, Bordon and Spreckels-Hussel1 had 69.1% or the fluid milk sales in thc San Francisco marketing area \with the balance of the fluid milk sales divided among 7 concerns. In 1955, Foremost, Borden, Carnation and Beatrice had 07. 5%, of the fluid milk sales in the Santa Clara, California, marketing aTCll with the balance or the fluid milk sales divided among 15 concerns. In ID55, Foremost, Carnlltion, norden, Challenge, and Berkeley had 74.4% of the fluid milk sales in the Alameda-Contra Cost.a marketing area, with the balance of the sales divided among 19 concerns. Although the foregoing sections of the country are the areas upon ,,,which the decision in this case is based, the record contains sales figures of the overall California area, that is, responclenfs percentage of the total sale.., of fluid milk in California. These figures indicate that ror the year 1954, the first year that respondent operated Golden State, the total volume or sales or fluid milk in Ca1iromia by Foremost was 63 920 628 gallons and the percentage of the total California sales of fluid milk in gallons \yas 16.1%, a.nd that l1uring the 8nccoeding year, 19tj5, the first full yent of responde-nfs operation of its Golden St.ntc acquisition, although t.he sales increased to 66 529 422 gallons, the pere-cntage of total fluid milk sales in the Stat.e declined to 15.7%.

Respondenes perc,entage of total California sales of fluid milk has declined each ye,ar in snee-eeding years although its volume of sales has inc.reused.

Respondent is the largest distributor of fluid milk in California the see-and Jargest being Arden Farms with approximate.1y D% of the ___ _ , , FOREMOST DAIRIES , IKC. 1009 944 Initial Decision market. The combined sales of Foremost, Arden Farms, Carnation Borden and Beatrice account for approximately 40% of the market. eference is made at this time to. the items, frozen da,iry products and ice cream, in ,which business respondent was engaged before the acquisition of Golden State which was a substantial factor in the sale of those products in California. The following table, taken from respondent' s brief (p. 33), sets forth the gallonage of frozen dairy products for the total California production, respondent's California production rmd respondent's percentage of the total. Total I Respondent' Year California Caliiornifj Respondent' production produc tiO!J percentage (gallons) (gallons) 1955_- 143 000 \01 , 179 19. 1956_ , 72 842 000 220 815 J. 5 1957-- 1 77 560 000 753 982 19. a 1958- 183 813 000 136 717 18. 1 The foregoing table includes ice cream, ice milk, sherbet, imitation ice cream and imitation ice milk, but excludes water ice and retail ice cream production. It will be noted from this table that the Foremost volume of sales has increased each year, although the percentage of total has declined 1.7% in four years. This is due to the fact that the total sales increased 23% while Foremost' s increased 12%. In order to make a comparison of the volum of frozen dessert business of respondent with those of its competitors at the time of the acquisition, the fa110wing figures are taken from exhibits furnished by both counsel for the respondent and the Commission for the year 1055. Out of a total of 70 301 000 gallons of ice cream and other frozen products in 1955, Foremost is first with approximately 13 000 000 gallons or 18.40%; Arden Farms is second with 10 180 000 gallons or 14.48%; Beatrice Creamery had a volume of approximately 5 600 000 gallons or 8% of the total; and Borden, 4 872 000 gallons or 6.03% of the total. In the ag,6.regate, the sales of these four dairy concerns accounted for approximately 48% of the total sales of ice cream, ice milk, milk sherbet, and other frozen dairy products in the State of California during the year 1055. The record contains figures from the Carnation Company but they are not included because it was found that they contained figures for ice cream mix. If they were included, their volume of sales would be approximately 11 % and the total sales of frozen desserts for the five concerns would be around 57%. There is no way of knowing how much of their total sales consisted of ice cream mix, so for that reason Carnation sa.les a.re left out of the compilation. 1010 FEDERAL TRADE CO?vVIISSIO DECISIONS Initial Decision 60 F.

It will be noted that there is a slight difference between the total gallonage figures in the two foregoing tabulations. The one which was taken from figures submitted by counsel for the respondent gives a larger percentage to Foremost for the year 1955. This is accounted for as follo\vs: the 13 000 000 gallon figure used for Foremost in the C011parison with others did not include mellorine or imitation ice cream whereas respondent's California figure, in the pe-rcentage table, included imitation ice cream but not water ices, and the amount there taken from Respondent's Exhibits 48 and 314, is 13 501 179 gallons and is more reliable.

Counsel for the respondents have asked the examiner to conclude that the California acquisitions have not adversely affected competition, emphasizing particularly the increase in the number of competitors within the individual markets; the growth in volume and increased ma.rket share attained by competitors, including small single-plant concerns; the decline in market share experienced by respondent and the other large, lllldti-plant, diversified concerns in tho individual market; and the respondent's general decline in position on an overall basis within the State. Consideration has been given to this contention on the part of Colu1sel for respondent, and the facts upon which he has drawn his conclusions and reconunenc1ation. IIowever, there are some facts which he has not mentioned in support of his recommendation which it is believed have more probative value in determining whether or not competition has been fLdversely affected as a, result of the acquisition in California. In the first place, in those market areas where the acquisition was horizontal that is, where the respondent was alrea.dy in the dairy business, the acquisition of Golden Slate resulted in the removal from the field of competition of its principal competitor in all areas but one, and gave to the respondent in aU arelLS a position of leadership with the largest share of the market of fluid milk. Insofar as the decline in volume of business done by Foremost after the acquisition in some areas, not in all, is concerned, this is a natural (l,nd ordinary experience of competition. \Vhcn an outside concern comes into an an, it is lUlusual for it to reta.in aU of the business of the acquired company. In fact 1\'11'. Turnbow, in his testimony in this case, indicated that it had been the experience of Foremost that when it ac.quired a cOmptLny it generally loses anywhere from 10 to 20% of the business 'Of the acquired cornp:my, that sometimes it recoYcrs that business, and sometimes it lloc not. COllsequBntly, very little weight is given to that type of evidence.

FORE::fost DAIRIES , IXC. 1011 044 Inital Decision 1\11'. Turnbow testified as to another phenomenon \\which characterizes the Golden State acquisition in California" as wen as other acquisitions of the respondent, and that is one advantage that a multipla.nt, nation-wide concern has over local competitors. 1)1:1'. Turnbow testified that the diversification of products is an important factor in tho ability to compete, and that a dairy company that can offer the customer a complete line of products has a competitive advantage over tt company that sells only milk or ice cremn singly. lie also testified that the larger producer, the dairy with large equipment has a distinct cost advantage over the small processor and distributor: lie has an advantage in that he is able to do research. He is able to hllve a control laboratory. He is able to put in equipment that costs a lot of money but \--il process a larger volume of product.

He further stated that a plant doing much less than 7 000 gallons of milk a day has a very hard tilne under present laws of paying its fa.rmers and the suppliers of its product.

Another fnc.tor which it is possible respondent did not take into cOllside,ration in its reeommendation is the evidence of a tendency to conc.entration in the sale of fluid milk and frozen desserts in the ha.nds of four or fiye large processors in the local areas where respondent competed with Golden State prior to the ac.quisition, a,nel also in the State of California as 11 whole. As n, result of the acquisition of Golden State, the respondent has nea.rly 20% of the frozen dessert industry, and the nearest competitor, another large concern, though loc.fJ in operation, has less than 15%. The total of four of the larger processors, including t\yO other multi-plant operations, Bordml and Beatrice, is nearly 50% of the total sales in that industry. Although this concentration does not exist to the same degree in the fluid milk industry, t.he fact remains that Foremost is the largest distributor and that 11 combination of its sn.les with those of four othor concerns results -in :1 concentration of approximately 40% of the industry. This acqnisition then appears to result not only in a substantial lessening of c01npetitioll, but also in a definite tendency to the creation of an oligopoly in the fluid milk and frozen dessert industries in California. In an oligopoly thero is an inherent tende,ncy to make cooperative rat.her than individual business judgments. A few large sellers dominato the market, and each knows that his policies have a substant1a.l effect upon market c.onc1itions and upon the marketing policies of the others.

718-C0.'- 64- 1012 FEDERAL TRADE COMJISSION DECISIONS Initial Decision 60 F.

III Testimony of Y1. A. Adelman The President of respondent freely testiied that the diversification as to territory is an inlportant factor in the ability of a dairy company to compete by spreading the risk overa.ll in that it can "hedge" losses in onc area, \with profits in another in consequence of its geographic diversification. I-Iowever, counsel for respondent atten"lpted to attack the contention that such diversification was a COlllpetitive advantage and introduced into evidence the testimony of 31:1'. 1\1. A. Adelman of the Iassachusctts Institute of Technology as to the economic and statistlea.! character of "hedging:' through diversification, to establish the proposed finding that no ;;competitive HclYantage" within the purview of Section '7 of the Clayton Act lias been attained in consequence of the acquisitions by respondent discussed herein. It is concluded that the testimony of J\Ir. Adelmnn, on this point, is incompetent tl,nd does not successfully contradict the foregoing testimony of )11'. Turnbmv.

Reference is made to the proposed findings of the respondent, beginning on page 293, entitled: "The Record of Big Concerns lIIeasul'ecl Against the Dairy Industry Over All." It refers to testimony of :VIr. :M. A. Aclehnan, hereinbefore mentioned, who in addition to his analysis of Hhedging, prepared certain studies on behalf of the respondent directed to the question of the alleged competitive advantage of "bigness" in the dairy industry. He assembled statistics re.lating to the size and structure of the dairy industry and formulated conclusions indicat.ed by that information as to the place of big, diversified companies. I-lis source data consisted of government stat.istics, mostly those of the l,Tnited States Department of Agriculture. Having done that, he then prepared a cOlnparison of the rates of growth of the big companies with the dairy industry overall. He started with the premise that the big, diversified concerns in the dairy industry have a competitive advantage, even in an expanding market, and that over the years their performance should be better than that of the industry, and their position in the industry should be enhanced. He included the seven largest processors and manufacturers in the dairy industry as ro1Jows: National, Borden, Beatrice, Fairmont, Carnation, Pet and Arden Farms, but omitted the respondent in this case for the apparent reason that it was not a competitive factor prior to 1950, and the period covered by the study was from 1935 to 1958. The conclusion was that four or the seven big, diversified concerns; Borden, Carnation, Pet FOREMOST DAIRIES) INC. 1013 944 Initial Decision and Fairmont, have not experienced a growth rate as rapid as that of the industry.

In considering the testimony of :\fr. Adelman, the following facts should be taken into consideration:

1. He made no attempt to appraise the competitive character of any dairy m,arket, either in a broa.d sense or a geographical sense. 2. The limitations on the figures, bearing on the size of the dairy industry and the component parts thereof, were not so much the quality of the figures, but their coverage. 1\1:1'. Adelman recognized this \Vhen he testified:

Yon do not hayc any ngul'es of a kind * * , on physical volume and dollar Talue of the various prouucts which make up the dairy industry, assembled on a consistent basis which would permit you to add them all up and get a meaningful total. (Tr. 3622) This is due to the fact that for many years the most important part of the dairy industry, fluid milk processing and distribution, was not looked on as a manufacturing operation-it ,vas classified by the census as "in trade." This was true until the late 1930's when the first. standard industrial classification was worked on-which classification was revised in the late 1940's when fluid milk processing and distribution \I- as made it part of manufa.cturing in the census figures. 1\1:1'. Adelman further testified:

You don t have a historical record of comparable figures that strctdl back in time \which you can use for a series. You hate instead these flgUl' cs on fluid milk processing hidden and it is impossible to get them ont because these figures \yel'en t collectecl in the first place-plIYsical volume, dollar '"value. ' lley just \were not collected at all. They don t exist-prior to 19 4. That was Ole first attempt made to get statistics on the :fluid milk industry. (Tr. 3624) :\11'. Adelman s problem was t.o see whether he could get a measure over a substantial time period in physical volume terms, and in money terms, of the economic size of the dairy industry and its principal com. ponents such as fluid milk, frozen desserts, butter, cheese, etc. 1-1c finally decided that a money measure was essential since pounds of milk could not be added to pounds of cheese or gallons of ice cream. He considered three kinds of money measures feasible; sales, the proc essing margin and assets.

Respondent also makes a comparison of production shares of eight of the largest dairy companies in relation to fluid milk sales and frozen dairy products. The conclusion is drflwn from these figures that some members of the dairy industry have not grown as rapidly as the industry since 1950, notwithstanding acquisitions that they had made. Reference is made, in this connection, to ational and BOTden, two of 1014 FEDERAL TRADE C01v:THSSIOK DECISIQ),TS Initial Decision 60 F.l'. the largest multi-plant dairy companies. From this it is further concluded that the diversified concerns c1iclnot have a competitive ac1vantn,ge over their smaller competitors, because their position haclnot been enhanced and their share of the market had not increased. The foregoil1g contentions or proposals ,,'ith respect to the testimony of :\11'. Adelman are rejected as not tenable. In view of the foregoing facts "with respect to the availability of l"cliable data upon -which to base any conclusion or premise as to volume of sales in the dairy industry prior to 1\)54, it is concluded that 1\11' Adelman has attempted to use too many imponc1e.ra.bles; to have made too ml1ny assumptions; and relied upon too many estimates for any probative value to be given to his testimony, and the exhibits prepared by him relating to historicnJ statistics of the dairy industry, a,nd any comparative figures set forth in tables covering a period prior to 1954 cmulOt be relied upon.

For instance, in his preparadon of a fluid milk universe for the years 18S6 through 1868 , Mr. Adeln"'n conc1udcc1 that llas of all fluid milk consumed "\yas sold at wl101resale to restaurants, institutions and hotels. On cross examination he admitted that his constant usage of this figure did not take into consideration ;;the tremendous cluLngc t.hat has taken place in the working population, fot example in the last 2;, years, the employed people of the United States, the tremendous increase in the military consmnption of fluid milk during vVorld vear II and the Korean IVaI', or the increased school en1'llments and hospital admissions.

Another assumption that is questionable "\yas :.\11' Adelman s cash universe of fluid milk based on the price paid per quart of fluid milk at "\"\-wholesale or home- delivery retail. This study cOJnpletely ignored the undisputed evidence contaille(l in his own source material that an increasingly greater percentage of milk is being sold in the half gallon or gallon containers, and that the qlla.rt containers sold for as much as 1 to 11 cents more than the la.rger cont.ainers on a per unit basis.

In applying either the wholesale price pel' qua.rt or the retail home deli\'ery price per quart, 1\11'. Adehnan s conclusions were based on a survey of t,,'only-five big cities in the United States. The credibility of these conelllsiolls is diminished by his admission that the average price paid for fluid milk in the quart container might be higher or lower in ot.her sections of the country', particularly in small towns or villages.

Another a.arbitrary assumption on the part of 1\11'. Adelman, which would tend to reduce the credibility of his ultimate figures, was the FOREMOST DAIRIES) IKC. 1015 944 Inital Decision allocation of 88.6% between wholesale and home-delivery retail; Ule result for the years 1953 through 1958 was 52% wholesale and 48% home-delivery retail. This assumption was made despite the fact that another witness called by the respondent, Dr. Christianson, indicated that home-delivery retail was rapidly declining, ,md that in October 1959 he was advised by the Department of Agrieu1ture that wholesale sale of milk accounts for approximately 60% of all milk s01d. (Tr. 3133) Dr. Turnbow, President of the respondent, testified in 1959 that the industry average as of that time was between 70% and 72% wholesale, and the babnce retail. Foremost at that time was operating at about 63% wholesale and 30% home-delivery retail. The undisputed evidence shows that the home-delivery retail price is from 2 to 3 cents per quart higher, so that the 48% home-delivery retail conclusion created ml upward bias in the ca,sh universe. ProbaHy the most serious objection to 1r. Adelman s taln11ation and study is in the cost ligures used on frozen desserts. fr. Adelman admitted that in computing the dollar sales universe of frozen dairy products he had 11 problell particu1a.rly in arriving at the wholesale price in cents per gallon. Aside from the fact that the U.S. Department of Agriculture production figures were available in only the later years, there were no such figures at all with respect to prices for frozen dairy products, and :111'. Adelman test.ified that it was necessary to have sa.les figures going back to 1985 for these products or he could not have comp1etcd his study of the whole dairy industry. accomplished this by taking the "implicit census:' price for 1954 and projecting it back through 1936, and projecting it forward through 1955. These projections " ere ma.cle by using a figure put out by the Interni1tional Association of Ice Cre,am :\Ianufacturers which was not a p1'ice figure but lL cost figure. Examination of offcials of that Association show that the reporting plants were not selected on any statistienny sOllnd basis, hut rather ,ycre merely firms volunteering to supply their cost figures to the Association; that it was impossible to determine from the underlying data whether the same plant or plants of the smne companies were used in each of the years; that the number of plants report.ing each year yaricd; that mello1'lne a.nd wa.ter ices are nndisputed1y cheaper to produce and sell for substantially less than ice crelun, and unless these sample plants produce the same proportions of ice crea.m and frozen desserts as national production a substantial distortion ,,-ould appear in the cash universe. A chain is 110 stronger than its weakest link, and it would appear that this is just one more weak link in :.fr. Adelman s chain of com- 1016 FEDERAL TRADE COMMISSION DECISIOKS Initial Decision 60 F.

plltariollS upon which his study of t118 domestic dairy industry is based.

In arriving a.t a cash universe for butter Ir. Adelman first determined the total annual butter production, then selected an arbitrary price \"hieh was substantially higher in all cases than the Chicago 92-6core price. It was Mr. Adelman s theory that all of the butter sold jn the country during each year was solel at a price of from 4 to 5 cents higher than the Chicago Exchange price. The underlying data hm,ever, clearly indicates that in 1954" 1955 and 1956, a substantial amount o-r the total butter production was purchased under a govern- 111ent price support program at several cents a pound below the price used by Mr. Adelman, but this factor was ignored by him. As a result, this caused a substantial upward bias in the butter universe in most of the years 1949-1958, during which the price support program IV as in effect.

It is true, as contended by counsel for the respondent, that there is no statutory prohibition against bigness per se, hmvevcl' when, as in this case, the bigness has been attained through the acquisition of the assets or stock of other corporations, we cannot closo our eyes to the practical result which is the outcome of such acquisitions and must take into consic1eration the size of the acquiring corporation as a result of the acquisition, compared to other units in the industry. The first test to be made of the effect of such an acquisition is the l'esnltflut share of the market of the acquiring concern. The economists clift'er as to how much of a share of a market is necessary for fl. corporation to enjoy before it attains a competitive Ldvantage oyer other corporations in the industry- Of necessity, there must be some point in the scale \yhere that share of market is suffcient to give the acquiring corporation such flll advantage. 1\11'. Turnbow, President of the respondent, in his testimony has listed some of the advantages big corporations have over small corporations in the dairy industry, when he te tificd that the larger producer in the dairy industry, \with larger equipment, has a distinct cost ad 'nlHtage over the smaller processor-distributor; and further: He has an advantage in tllat l1e is able to do reseal'c11; lJe js able to have a control lauoratOlY; be is able to put ine(juipment that costs a lot of mane.' but n.m process a larger ,.volume of product. * * ,;, A plant doing much less than 7.000 gallons of milk a day has a very hard time under present laws of paying its farmers and suppliers of product. JIe a.1so indicated that economies could be experienced in distribu tion by having Jarge volume processing. There is ample evidence in the record t.o show that large, financially strong corporations have : . :::::::::::::::::::::___ _ __ :__.\ ;::; FORE:YIOST DAIRIES , INC. 1017 944 Initial Decision nlany advantages over their smaller COlllpetitors: for instance (a) in their ability to obtain adequate financing to expand or extend their operations; (b) to promote their product through national or local advertising; (c) to engage in research; (d) to more readily diversify both product.wise and geographically; and (e) to establish prestige in the eyes of the buying public.

That respondent is now a. major factor in those sections of the country ,vhere it is found herein that it has made acquisitions which have resulted in a tendency to lessen compet.ition, is indicated in the consolidation of the Federal Iilk Order Production figures of re. sponclent from 1956 through 1959, in five areas, ,yhen compared with universe figures in those. areas. The. following table. graphically portrays the situation.

Respondent' s Fluid Milk Sales Record Measured Against the Total Dairy Industry in Certain Sections of the Country Where Acquisitions Took Place.

Consolidated Federal :vIarket Order Figures for those Federal VrfLrket Order Areas in 'which acquisitions ,were made that are found to be in violation of Section 7 of the Clayton Act. F,cem,,' nim ;hi . _. i 7 , 260: 355 _ - - - 05- 576 - 220 - ! - - - - - - 26.- 3 Sioux FaUs-!IitchelL__ ----- 9 493 158 912Korth Texas--__-- ------------ 77 302 812! 475 700 064 16.San Antonio-- 158 864 152 684 952 15. Total_-- -- 127 215, 750 ! 722 130 0781 17. Bluefield 9, 866, 386 I , 550, 500 32. Appalachian__- -- --- --- - , 845, J 02 I 66, 576, 000 25. Sioux Falls-NIitchcIL------- - - 957 346 ; , 324, 000 ' 31. 6 Xorth Texas__-- - - , 423, 440 493, 626, ODD I San Antonjo--- ---- , 804. 471 164 257 300 13. Tot 134, 896, 745 783, 333, 800 i 17. ______ _____ _ _ _ _ 1018 FBDERAL TRADE COMMISSIOC' DECISIONS Initial Decision GO F. :Forcrnost Universe Foremost , Percentage Bluefield 733, 05S - , 055, 400 32. -1 AppalachiaIL- - - - -- --- -- - - - -- 315 , 252, 300 1. 6 Sioux Falls-l\itchclL_ 8 65D 120 , 194, 000 29. 1\ orth Texas_ t): 292: 113 497, 64, , 000 15. 1 San Antonio_-- - -- - -- -- -- , 512, 394 167 018 , :JOO 12. a Total ------ -- -- - -- --- -- -- 131 441 000 794, 165, 000 16. Bluefield_ 002 765 , 080, 500 I 33. AppalachiaIL 075 001 , 266, 600 , 23. Sioux Falls-Mitchell_ -- 8 767 658 , 480. 200 'Korth Texas--_-- ; 79 674 651 507 379 800 28.1.5. S San Antonio_-- ' 06:5 174, 950. 700 12 0 Total_ ------- 136 583 400 816, 157, SOD 16. COXCL l)SIOXS A. As to the Facts Tho acquisition of \Vestern Condensing COlllpany, International Dairy Supply Company, and Internationa.l Dairy Engineering Company are an conglomerate acquisitions. There is no evidence in the record indicating the competitive condition in the markets in which those corporations did business. Campos Dairy Products, Ltd. , 110nolulu, Hawaii, a subsidiary of Intenlational Supply, was engaged in processing and selling milk in lIonolulu when acquired by Foremost. This ,,' as L market extension. There is no evidence of adverse effect on competition as a result of this acquisition. With respect to the acquisition of Blue Moon Foods, Inc., and its subsidiary June Dairy Products Co" Inc., the respondent 'vas not engaged in the manufacture of cheese and there is no evidence as to where it competed with Blue )loan .or .June Dairy in the sa.le of cheese. As to the other products ,,,which were handled by .Tune Dairy, such as poultry and eggs, there is no evidence that respondent engaged in the sale of such products in competition with June Dairy at the time of the acquisition.

At the time of the acqu1sitiOll of Florida Dairies, Incorporated respondent was a subst lntial factor in the l\Iiami, :Florida, market and the ac.quisition of Florjda Dairies tended io give it it decisin cOlnpetib ve advantage over its competjtors. The only inchcatioll FOHEMOST DAIRIES e'w. 1019 944 Initial Decision however, that Florida Dairies ,,,as engaged in interstate commerce was in the purchase of dairy products, such as heavy cream, skim milk and cottage cheese, from a ''' wholesaler in :.liami who in turn had imported these products frolll outside the State and they had come to rest in the wholesaler s warehouse before being delivered to Florida Dairies. There is no competent evidence in the record to support the conclusion that Florida Dairies ordered these products before they were 5hi pped from outside the State.

As to Philadelphia Dairies, the only evidence of competition between the respondent and this acquired corporation was in the sale of ice cream in K ew York City and on Long Island, including the Borough of Brooklyn, Kew York. There is some evidence that Philadelphia Dairies was a substantial factor in the sale of fluid milk in the Philadelphia market. Its estimated share of the market was 9.3% at the time of the acquisition. There is also evidence in the record that it ,,"ould rank no more than third in point of volmne, and that it had two or three strong competitors in that area in the sale of fluid milk and ice cream so that it could not be concluded that the acquisition of Philadelphia Dairies tended to give respondent a decisive advantage over competitors of Philadelphia Dairies in the Philadelphia market. The competition in the sale of ice cream in New York was not substantial.

As to American Dairies, this \vas a market extension in fluiclmilk in that respondent did no dairy business in the areas where .American Da.iries and its subsidia.ries operated. The only evidence of the competitive euect of the acquisition, or the relevant position of t.he American Dairies at the time of the acquisition, is that in the K eosho Valley, in and around .J aplin, l\1missouri, according to the Federal lrarket figures of total sales of fluid milk, Foremost after the acquisition had about 18% of the total and this percentage increased in the succeeding years. It is concluded that there is no evidence of adverse effect on competitiOli resulting from the acquisition since there was no competition between respondent and the acquired corporation prior to the acquisition.

\With respect to the acquisition of Bridgeman-Russell, Duluth J\Linnesot.a, \'with branches in North and South Dakota, this ,vas a complete market extension acquisition since respondent was not engaged in the ma.nufacture or sale of a.ny dairy product in those areas at the time of the acquisition. The only evidence as to the relative size or importance of the Bridgeman-ll.ussell operation is that it probably ranked fourth or fifth in the sale of fluid milk in the Duluth metropolitan area. There is no evidence in the record as to 1020 FEDERAL TRADE COMMISSIOK DECISIOKS Initial Decision 60 F.

the relative importance of the Bridgeman-Russell operation in the Xorth Dakota area or in the Sioux Falls, South Dakota, area, where it operated Dairyhtnd Creamery Co. There is no evidence of adverse competitive effect resulting from this acquisition. As to the acquisition of the Crescent Creamery Company, Sioux Falls, South Dakota, this was horizontal so far as fluid milk and ice cremes are concerned, since respondent was in that Inarket with Dairyland Creamery Co. The evidence in the record indicates that as a result or this acquisition, as hereinbefore set forth, respondent gained a decisive competitive advantage over it competitors in that market area or section or the country around Sioux Falls, South Dakota, and there is a probability of a lessening of competition and a tendency to monopoly in that section of the country, particularly in ,yholesalc fluid milk sales to chain st.ore supermarkets. As to the acquisition of the Portsmouth Pure Milk Company, Portsmouth, Ohio, there is no evidence of competition between respondent and this corporation prior to the acquisition, and it appears that the Pure plant was abandoned soon after it was acquired. As to the acquisition or Old Hundred, Inc., Southbury, Connecticut t.his was an acquisition of an ice cream plant and there is no evidence of competition bet Yeen it and the respondent, or as to the competitive effect of the acquisition.

As to the acquisition of l)loanalua Dairy, Ltd. and Hieo Ice Cream Company, Ltd., the )Ioanahm Dairy acquisition was a horizontal acquisition, since respondent was in the 11onolulu market with the Campos Dairy which it acquired at the time it acquired International Dairy Supply Company. Although the Wco Ice Cream Company acquisition might be considered a market extension as Foremost had not sold ice eremn in I-1onollllu prior to its acquisition, it wns in fact complementary to the foanalua milk business and cannot be separated. As a result of the acquisition of :.foanalua, it is estimated respondent controlled 30% of the fluid milk market in Honolulu, the principal City of the Ishmd of Oahu, which would give it a decisive competitive advantage in that market.

As to the acquisition of \Videmire, Inc.) of Sylaeauga, Alabama there is no evidence of competition between respondent and this company prior to the aCCJuisition, or as to the competitive effect. Southern Jlaid, Inc., Bristol, Virginia, acquired by respondent in 1952, had combined milk and ice cream processing plants at Bristol Virginia and Bluefield, "Test Virginia, as well as a processing plant for milk alone at ICingsport, Tennessee. In addition to its sales at these plants, Southern faic1 also operated distribution branches at TC. 1021 FOREMOST DAIRIES, I 944 Initial Decision Johnson City and Greenvile, Tennessee; Pikesvil1e and Middlesboro, Kentucky; and Riehlands and Appalachia, Virginia. This was a horizontal acquisition in the sale or fluid milk and ice cream, since respondent was in two of the same market areas in the Cities of Kingsport and Johnson City, Tennessee, at the time of the acquisition. At the same time the respondent acquired Southern j)Iaid, it also acquired the IVelch .Milk Company of "IV eleh, "IV est Virginia, where the respondent was not in business. Although IVelch w.as not in the immediate area or Southern 1\laid, the two companies had the same offcers and stockholders and their businesses were conducted as a common operation, thererore, they are being jointly considered herein. The C011bined business or these two acquired companies apparently has given respondent a definite advantage over its competitors in the section or the country comprising the tri-city market area or Bristol, I\:ingsport n,nc1 Johnson City and in the marketing area included in the Federal lIIiJk Order known as the Appalachian Order, "hieh order included the operations or 'most or the Southern 1\laid plants and branches and or Foremost in that area, at the time or the acquisition. A second FederalllIilk Order known as the Bluefield Order covering the area which had therefore been supplied either by the plants or branches of Southern Maid or by the "lVeleh Milk Company plant at 'Welch, prior to their acquisition also indicates respondent has a competitive advantage in the Bluefield area.

'\With respect to the acquisition or Central Dairies, Inc., Columbia South Carolina, this was a horizontal acquisition or an ice cream plant, but there is no evidence as to the competitive effect of the acquisition, and tl1c volume of business done in the area by Central Dairies was de minimis.

As to the acquisition of the Gunn Ice Cream Company, Pensacola Florida, there was very little, if any, competition between respondent and this company, and the effect of such acquisition was de minimis. The Graham Dairy, Inc., :Miami, Florida, acquisition, was a honzontalacquisition ;n fluid milk since respondent was ;n the Miam; area. prior to the time of the acquisition. Graham Dairy s share of the market was 3% and the respondcnes was 8%. Since there ,,"ere. three or rOUI' larger distributors in the 1\iiami market, the acquisition did not give Foremost a decisive advantage over its competitors in that market.

The acquisitions of Banner Dairies, Inc., Abilene, Texas; Tennessee Dairies, Dallas, Texas; and Phenix Da.iry, I-Iouston, Texas, ,were for the. most part horizontal and tended to give respondent an advantage over its competitors in four market areas or sections of the country, Initial Decision 60 namely, Dallas-Fort \Vorth, Abilenc, San Antonio and Houston, and also indicated ll, tendency toward substantially lessening competition in the saJe of fluid milk and ice cream throughout the State of Texas. The acquisition of Golden State Company, Ltd., San Francisco California., was a horizonta.l acquisition for substantial areas in the State and the acquisition gane the respondent a decisive competitive advantage over its COlllpetitors in four market areas or sections of the country, namely, Alameda-Contra Costa, San Francisco, San :Mateo and Santa Clara as to fluid milk, and had 'a tendency to substantially lessen competition in the entire State of Oalifornia in the sale of fluid milk and ice cr am.

The acquisition of farin Dairymen s l\ilk Co., Ltd., San Francisco California, in iay 1953, was a lllarket extension acquisition as Fore m05t was not in conlpetition with it in any market prior to the acquisition.

The I vo s Dairy, Incorported, :.Iiami, Florida, acquisition, was a horizontal acquisition like Graham s which respondent had previously purchased. The acquisition did not give respondent a decisive advantage over its competitors in the :\liami area. With respect to the acquisition of the De Soto Ice Cream Division of An110nr and Company, :.Uinnea.polis Iinneso:ta., this was a. horizontal acquisition since the respondent was engaged in the manufacture and sale 'of ice cream in linneapo1is at the tilTlC the De Soto business was lLcquired, hlLving bought the Ive s CrelLmery Co. about a month before. I-Iowever, there is nol snffcient evidence of the 'Competitive effect of the acquisition to warrant a iinding that there was an adverse effect upon competition between the L,vo corporations or upon competition in the ice cream industry in that area. As to the acquisition of the lye s Creamery Compa.ny, doing business in :Minnea.po1is Iinnesota, anclother phces in the State of :Minnesota at the time of the acquisition respondent was not engaged in the manufacture and sale of ice area1l in that area., so that it ,vas a market extension. As a result of the acquisition of lye s and Dc Soto and Vander Bio, a smaller company, all within a few months time and considered as a pa.ckn,ge deal\ respondent was ranked as fourth in the Iinneapolis ice cream market behind Kemp s and Crescent, jointly owned, in first place; North.hland Ice Crea.m & i\.flk Company, in second; and Bridgeman-Land- Lalres in third. Therefore it cannot be concluded that the cornbined De Soto-lve s acquisitions tended to give respondent a competitive advanta.ge in the sale of ice cream in the l\Iinneapolis area.

FORE3,fost DAIRIES J INC. 1023 944 Initial Decision B. As to the Law 1. Violation of Section of the Fedeml Trade oommission Act. The following is the position of the hearing eXflminer with respect to the allegations in the complaint as to violation of Section 5 of the Federal Trade Commission Act, and the jurisdiction of the Commission in the premises.

This question first came up in the initial hearing at which time the hearing exaJuiner ruled against the attorneys in support of the complaint: "on any attempt to enforce Section 5 of the Federal Trade Commission Act.:' At that time he granted a motioll to strike from the complaint that portion referring to Section 5, stating: It seems to me that \vhcn Congress amended Section 7 and gave us additional authority, that it was intended to confine our activities to that section. IVe have been turned back every time 'we have attempted to use Section 5 as a substitute for Section 7, or as a complement to it, or a supplement to and I think it a waste of time and effort and money.

This is not the first time that the Federal Trade Commission has attempted to utilize Section 5 of the Federal Trade Commission Act in pre\Tcnting acquisitions of competitors. The first instance was where, in the case of ,Yestern :JlmLt Company vs. Federal Trade Commission (1 F. 2d 95), consideration of the Commission s complaint and order to cease and desist by the Gnited States Circuit Court of Appeals in 1924, the Court held that the acquisition of the capital stock of the evada Power Company violated Section 7 ofthe Clayton Act and that the conclusion of the Commission that tlle acquisition constituted a violation of Section 5 of the F. T.C. Act was also proper. On H, rehearing, this Court modified the Commission s Order of Divestituro but the only mention of the Conunission s Order under Section 5 of the Federal Tra.ce Commission Act that was made to limit the Commission s pO\\"cr to the issuance of an order to cease and desist from using unfair methods of competition. I-Iowever, when the case ,vas before the Supreme Court on a writ of certiorari from the second hearing of the case in the Court of Appeals (4 F. 2d 223), Mr. Justice McReynolds, speaking for the majority of the Court, analyzed Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act, and the relation between these two sections. I-Ie state: Section I; of the Act to create a Federal Trade Commission, approved September 26, 1914, c. 311 , 38 Stat. 717, 719, declares unfair methods of competWon in commerce unlawful, prescribes the procedure to be follmved, and gives the Commission power to require an offending party to cease aod desist from 'Such methods. 'ihis s(jction is not presently important; the challenged orders sought to enforce Section 7" of the Clayton Act. (272 U. S. Code 554, 557) (Italic supplied.

1024 FEDERAL TRADE COMMISSION DECISIO Initial Decision 60 F.

In April 1924, the Commission issued a complaint against the Eastman Kodak Company, et al. (7 F. C. 434), charging a violation of Section 5 of the Federal Trade Commission Act and, as a result, an order was entered by the Commission requiring the respondent, a.among other things, to cease and desist IrOlll conspiring to restrain com peti. tion in the manufacture and sale of certain fibn stock and to maintain and extend the monopoly of the Eastman Kodak Company by "The acquisition and equipment by the Eastman Kodak Company of the Paragon Laboratory, the G. f. Laboratory and the Sen J acq Laboratory; by the use by the Eastman Kodak Company of the ownership and possession of said laboratories in the production of certain films; and by the continued ownership by Eastman Kodak of the said laboratories.

It was further ordered:

That for the purpose of preventing the maintenance and extension of the monopoly of the Eastman Kodak Company in the manufacture and sale of positive raw cinematograph film stock to the use thereof in ruaJdng positive prints of cinematograph firms and of restoring competitive freedom in the distribution and sale of positive raw cinematograph film stock, the Eastman Kodak Company shall, with all due dilgence, sell and coj1vey the said Paragon, G. ::1. alld Sen ,Jacf! laboratories to parties not connected directly or indirectly in interest with the Eastman Kodak Company.

This order of the Commission was reviewed by the United States Court of Appeals for the Second Circuit which rendered its decision in l\hy 1D25 (7 F. 2d 994). One of the questions which that Court had to decide was whether or not the Commission had authority to require the Eastman l\.oc1ak Company to sell the laboratories, procured as described in the findings, to someone "not connected directly or indirectly in interest" with itself. The Court held: ",With the first proposition we do not agree, and hold that since corporate power exists, it was not and is not unlawful for Eastman Kodak Company to equip itself for or to enter upon the business of making pictures; but it was and is unlawful for. the Commission to order that Company to dh' est itself of the factories or laboratories so lawfully acquired. The Commission is not a court; it exercises administrative not judicial power (Xationnl Harness Ass, etc. vs. Ifederal Trade Commission, 268 F. 705; Chamber of Commerce vs. Federal Trade Commission, 280 F. 745) and no statutory grant can be found justifying the order that a citizen sell property ac. (jl1ired in the course of business.

But even if the Commission had the power of a court, as exercised in the cases relied on (Standard Oil vs. United States, 221 U. S. 1; "Cnited States vs. Allerican robacco Co. , 2 1 U.S. 106) there was DO basis for exercise of power. The sale object of CommissiOil action was to prevent unfair competition, but there was nothing unfair in the kodak company going into the business of making pictures; on the contrary it is fundamental just now in this country that competition is FOREMOST DAIRIES, I 1025 944 Initial Decision holy, the more we ha,e the better persumabl;y are \\-e off; therefore the act of getting ready to compete in the picture making art, was under our statutes 110sitively meritorious, and no court could have prevented ,,'bat was done. In that case, J udge Tanton dissented in part, taking the position that:

while the Commission is not a court, and exercises no judicial power, it has the po\yer in the proper case to order a respondent to dispose of property acquired by it which it is found using as a means to unfair competition in trade. Indeed, it may order the disposing of the plant or property \which it uses in part or whole in creating a monopoly.

The Eastman Kodak case was considered by the Supreme Court of the United States, and was decided in May 31 1927 (274 U. S. 619). In its consideration of the question of whether theC01mnission had authority to issue an order requiring the Eastman Company to sell and convey its laboratories to other parties, that Court held: The proceeding before the Commission was instituted under Section 5 of the Federal Trade Commissioll Act, and its authority did not go beyond the provisions of that section. By these the Commission is empo\vered to prevent the using of "unfair methods of competition" in interstate and foreign commerce, and, if it finds that "any unfair method of competition" is being used, to issue an ordcr acquiring the offender "to cease and desist from using such method of competition . The Commission exercises only the administrative functions delegated to it by the Act, not judicial po\vers. (Citing the same cases as cited by the Lower Court) It has not been delegated the authority of a court of equity. And a Circuit Court of A..appeals on a petition to review\v its order is limited to the question whether or not it has properly exercised the administrative authority given it by the Act, and may not sustain 01' award Telief beyond the authority the Commission; such reyie,y being appellate and re,isory merely, and not an exercise of original jurisdiction by the court itself. '1' he question here presented is, in effect, ruled by Federal Trade Commission VB. 'Yestern lIeat Company (272 U. S. 554, 561, 5(3), in which the decisions in Federal Trade Commission \"s. Thatcher )':Ianufacturing Co. (CCA 5 ),-' . 2d 615) and Swift and CO. VB. Federal Trade Commission (CCA 8 F. 2d 595), that were relied upon hy the Commission in its petition for the writ of certiorari, were rcyersed by this Court. In that case it \vas held that-although the Commis. sian, having been granted specific authority by Section 11 of the Clayton Act to require a corporation that had acquired the stock of a competitive corporation in violation of law "to cease and desist from such violations, and di,est itself of the stock held", might require the corporation to divest itself of such stock in a manner preycnting its use for the purpose of securing the competitor property-it coulll not, after the corporation by the use of such stock had acquired the property of the competitor, require it to diyest itself of the property thus acquired so as to restore the prior lawful condition. As to this we said: The Act has no application to ownership of a competitor s property and busi. ness obtained prior to any action by the Commission, even though this was brought about through stock unlawfully held. The purpose of the Act was to prevent continued holding of stock und the pecnliar eyes incident thereto. , ,, 1026 FEDERAL TRADE COMMISSIOC' DECISIONS Initial Decision GO F.

If purchase of property has produced an unlawful status, a remedy is provided through the courts." And they " must administer ,yhateyer remedy there may be in such situation. Distinct reference \Tas there made (p. 5G1) to Section 15 of the Clayton Ad, where express provision is made for the invocation of judicial remedies as Deed therefore may arise. So here, the Commission bad lid authority to require that the Company divest itself of the ownership of the laboratories which it had acquired prior to any action by the Commission. If the ownership or maintenance of these laboratories has produced any unlawful status, the remedy must he administered by the courts in appropriate proceedings therein instituted. lr. justice Stone filed a rather strong dissenting opinion, indicating that the case could not be, disposed of without determining whether the acquisition and retention of the film laborntories by the Eastman Company, under the circumstances disclosecl by the recdrd, constituted in itsoH or was a part of or a step in an unfair method of competition. Ir. justice Brandeis joined Ir. Justice Stone in the dissent. It was nearly thirty years later before the Commission made another attempt to utilize Section 3 of the Federal Trade COJIlmissioll Act in requiring n, respondent to cease nnd desist from acquiring or attempting to acquire any o"'lwrship of capital stock 01' properties of competitors. In the case of K ational Lend Company vs. Fec1enll Trade COlIllnission, decided in the Seventh Circuit in 1953, respondents were cha.rge.c ,,.ith violations of Section 5 of the Federal Trade Commission ..\.ct and Section 2 of the Clayton Ad, as amended b the Robinson-Patmun Act. The Commission found that the ational Lead Company had violated Section 5 of the Fecle.ral Trade Commission Act and ordered tbe Company to cease and desist from acquiring or aUempting tu of its compl'titOl'sacquire any ownership of the capital stock, or properties of ally in the lead pigment field. (227 F. 2d S2 , 837) Concerning this order, the Court of Appeals stated: Irrespecti,e of the Commission s power under Section 5 e think tbe order so wanting in eddentiary support and so arbitrary that it cannot stand in any event. Therefore, we do not consider the Section;) question. In that case, the complaint had charged and the Commission had found tlll,t the Kational Lead Company had, beginning in 1891, encontrol of lnd a monop01ygaged in acts tending toward subst.a,ntial in the lead pigment industry in violation of Section 5 of the Federal toTrade Commission Act; aecordingly, it had ordered the compa,ny cease and desist from acquiring or attempting to acquire any ownership of the capital stock or properties of any of its competitors in the lead pigment field. The court then went on to point out that the Commission had found that National ,"as incorporated in 1891 , ef- , FOREyfOST DAIRIES , INC. 1027 944 Initial Decision fecting a merger of sonle 16 companies engaged in pigment production and that bet",een that date and the mid 1930' , it had acquired the properties of more than 30 other producers. From 1931 to about 1935 ational had made several attempts to Rcquire the facilities of its la-rgest competitor.

The Court pointed out that the ultimate finding of incipient monopgl'OIYth ofoJy was based on those findings as to transactions in the petitioner te a dominant position in its field. 'Ve find the assertion that occurrences concluded more than twenty years before the order was entered can justify a 1JCrpctual injunGt'ion against any tutlU' O acquisition at stock 01' physical assets ot National's competitors a startling one. 1'he Commission stated that it had not considered the question of possible antitrust violaiions in petitioner s growth from 1891 to the middle 19aO' s. Kevertheless, it relied on findings which can have no purpose s-ave possibly to prove that a monopoly already exists to support its order which is geared solely to pre,ention of monopolistic practices at some undisclosed future date. * "' ., lItalic supplied.

'Ve are not here concerned with judicial prononncements that the Commission bas authority to determine the 5(:01)e necess,nry in a cease and desist order to prevent violations of the Act. That IJrinriple ass1UIles a present violation of the Ad. in which case the Commission is given ,vice latitude in framing its order to compel compliance with the Act.

But such is not tlle case before us. The Commission has concluded from its findings of past activities, which may have had monopolistic overtones long ago that petitioner presently harbors a desire to swallow IIp all l'ompetition and that, at some undisclosed time in the future, it intends to do so. Presumably the evidence of this intent is too dc1icate to stand the 1igl1t of clay, since it cannot be found in the record. Drafted on this basis, the order before us seeks to spank the child, Dot for naughty acts dODe or threatened, but on the general principle that he, may somewhere, somehow, in the future engage in mischief. This presumes the existence of a power even broader than that residing in a court of equity.

This case ,,-ent to the Supreme Court of the United States, which in its decision hancled down February 2:"5, 1957 (i)52 IT S. 419), did not discuss the question of the pmver of the Comnlission to require the respondent to cease and desist from acquiring a,ny of its competitors. It did, hmvever, reaffrm what it had previously said in the ,Vestern )Ieat Case, supra" that "The Comlnission may exercise only the powers granted it by the Act.

Counsel in support of the compla.int in the present case has indicated, during the course of trial, that there were remedies under Section 5 that were not foreclosed by the Eastman Kodak Case; for example The one possible remedy would be to cease and desist from making any further acquisitions, corporate or non-corporate, in commerce or not in commerce," This contention must be based on the 719-603--64-- Initial Decision 60 F. T. assumption that the C01111Uission has more power under Section 5 of the Federal Trade Commission Act than it has under Section 7 of the Clayton Act, an assumption which is not supported by either court decisions or by logic. If the COlruission had such power, under Section 5, why was it necessary for Congress to enact Section 7 of the Clayton Act in 1914, or amend it in 1950? Congress, in its wisdom has amended the Clayton Act to make sure that the Commission does not interfere with the business transactions of small units in any industry, by requiring that the Act be restricted in its application to corporations engaged in commerce, and further, that the acquisition is unlawful only where the effect may be: " substantially to lessen competition or tend to create a monopoly" in any line of commerce in any section of tho country. This last requirement is admittedly intended to make the law applicable only to transactions having a substantial direct on competition in any given market, and not to apply to inconsequcntial acquisitions; that is, acquisitions which have an inconseque,ntial effect on competition.

Furthermore, any cease and desist order entered by the Commission under Section 5 would necessarily be restricted to unfair practices or methods which it had found respondent to be engaged in at some time in the recent past. As indicated )n the National Lead case, it has to be assumed by the Commission that the respondent is going to continue the activities of acquiring corporations where the acquisitions would be in violation of law. vV11at good would it do to require a respondent corporation to cease and desist acquiring corporations, unless it could be shown that the effect of such acquisitions would violate Section 7 of the Clayton Act which Congress intended to apply to such transactions? The Court of Appeals correctly Slll1' marized the situation in the last quotation given from the National Lead case.

2. FioZation of Section of the Clayton Act. In order to establish a violation of Section 7 of the Clayton Act, it is incumbent upon counsel in support of the complaint to est.ablish: a. The relevant lines of commerce.

b. The relevant sections of the country.

c. That the acquired concern is a corporation engaged in interstate commerce in the relevant line of C01nmero.e. d. That the ,acquisition or acquisitions cause the requisite adverse effect upon competition or tendency toward monopoly. (1) The relevant lines of commerce.

It is found first that the overall line of commerce as alleged in the complaint is "dairy products " defined as including "one or any nUID- , .

FOREMOST DAIRIES, INC. 1029 944 Initial Decision bel' of the follo\Ying products: Inilk, cream, ice cream, cheese, butter eggs, canned fresh milk, and eva.porateclmillL " This ,allegation was admitted in respondent's answer. Respondent denied the allegation that said products were distributed "to retail consumers and to stores restaurants, hotels and other miscellaneous outlets. It is further found that, within the intent and meaning of Section 7 of the amended Clayton Act and the foregoing allegations of the complaint, the processing and sale of fluicllnilk (""hole lnilk, skim milk buttern1i1k, flavored milk, mixtures of milk ancl cream, light cream and heavy cream) at wholesale and retail is a relevant line of commerce involved in this case.

It is also found that, within the intent ,and meaning of Section 7 of the amended Clayton Act and the foregoing allegations of the complaint, the manufacture and sale of frozen dairy products, including ice cream at wholesale, is another line of commerce involved herein. '1"he selling of ice cremn at retail to the consumer is a separate Ene of conunerce.

It is also found t.hat, within the intent and meaning of Section 7 of the amended Clayton Act and the foregoing allegations of the complaint, the manufacture and sale of butter, cheese, eggs, canned fresh milk and evaporated milk, respectively, are relevant lines of commerce involved herein.

Reference is made to Unjtecl States vs. E. I. du Pont de :Nemours and Company, et al., 353 U.S. 586 , 594-595, as authority for t.he foregoing finding. The Supre.me Court held:

in order to determine the existence of a tenuency to monopoly in '" *' * nny . '" ., line of business the area or areas of existing effective competition in whicb monopoly power mig-ht he exercised must first he determined. * * Determination of tbe relevant market is a necessary predicate to a finding of a violation of the Cla;non Act because the threatened monopoly must he one which wil substantially lessen competition " within the area of effective competition. Substantiality can be determined only in terms of the market affected. The record shows that automobile finishes and fabrics have suffcient peculiar characteristics and uses to constitute them products suffciently distinct from all other iini:-hes and fabrics to make them 'a "line of commerce " within the meaning of the Clayton Act. cr. Van Camp & Sons Co. v. American Can Co. 278 U. S. 245. Thus, the hounds of the relevant market for the pnrposs of this case are not coextensive with the total market for finishes and fabrics, but are coextensive with the automobile industry, the relevant marl,et for automotive finishes and fllbJics.

Applying the test in that case to the facts in this case, it is believed that the separate dairy products, as found above, have snffcient peculiar characteristics and uses to cOllstitutB them products suffciently dis- 1030 FEDERAL TRADE COMMISSIOC' DECISIOC'S Initial Decision 60 F.

tinct from all other dairy products to make each of them a "line of connnercc" within the meaning of the Clayton Act. (2) The section of the country.

The relevant " sections of the COlUltry" are those areas of competition in numerous locallnarkets throughout the country where there is an area of effective c01l1peti.tion" in the products included in the lines of connnerce hereinbefore indicated. The House Committee on the J ucliciary in referring to this question stated: The test of snbstantiallesS€lling of competition or tending to create a monopoly is not intended to be -applicable only where the specified effect may appear on a Kation-wide or industry-wide scale. The purpose of the bill is to protect competition in each line of commerce in each section of the country. In the Bethlehem Steel CIT5e, 168 Fed. Sllpp. 576, 588-589, 592-593 it was held:

The parties also cliffer on the appropriate relevant sections of the country for appraising the effects of t.he merger on COmlJetition. However, they appear to agree with the view expressed by the Senate COllmittee that " section of the country " is not capahle of rigid definition and that in application a section of tlie country wil vary according to the particular facts of each case. The Senate Committee Heport states:

Although it is, of course, impossible to define rigicly \vhat constitutes a "section of the country, certain brand standanls refi ting tle general intent of Congress can be set forth to guide the Commission and the comts in their in tel'preta tiOIl.

'Vhat constitutes a section 'wil vD.ry with the nature of the product. G,ving to the differences in the size and cllaracter of markets, it would be meaningless from an economic voint of view. to attempt to apply for all products fl uniform definition of section, whether such a definition were based upon miles, vopulation income, 0'1' any other unit of measurement. A section which would 'be economically significant for a heavy, durable product, such as large machine tools, might well be meaningless for la light product, such as milk. As the Supreme Court stated in Standard Oil Co. v. V. S. (337 V. S. 293), Since it is the presenation of competition which is at stake, the significant proportion of coverage is that within the area of effective competition.' In determining the area of effective competition for a given product, it wil be necessary to decide "'what comprises an 'appreciable segment of the marl;:et. An appreciable segment of the market may not only be a segment which covers an appreciable 'segment of the trade, but it may also be asegmellt which is larger:r segregatell from, independent of, or Dot affected by the trade in that product in other parts of the country.

It should be noted that although the SL'(t:on of the country in ,which t11ere may he a lessening of competition ,,,il normally be one in which the acquired company or the acquiring comp.any may do business, the bil is broad enough to cope with a substantial lessening 'of competition in any other section of the country as well." 1 H. R. Report No. 1191 , 81st Congress, 1st Session, page 8. 2 Senate Report o. 1775, sist Congress, 2nd Session, pages 5 and G. FOREMOST DAIRIES , INC. 1031 944 Initial Decision In the present case there arc a number of sections of the country involved. For instance, in the acquisition of Tennessee Dairies, Dallas Texas, there are certa,in metropolitan areas which are recognized as sections of the country where the acquiring and the acquired corporation ,were engaged in the dairy busine.ss and the effect of the acquisition in those cases could be fairly wen determined. Insofar as fluid milk is concerned, the record demonstrates that it is ultimately de livered to customers frOlTI plants and branches in route trucks within certain prescribed are,as of from sometimes 40 to GO miles from the plant, bnt in other inst"nces as high as 300 miles from the processing plant, depending upon popnlation density. .With respect to ice cream however, clue to the nature of the product and the broader markets therefor, and the ability of the manufacturers to make deliveries at points farther remove,a from the point of manufacture, the section of the country Inay be n larger area than with respect to fluid milk. As pointed out in the Bethlehem Steel Case, supra, which quoted from the Senate Report: ",Yhat constitutes a section will vary with the nature of the product. * * * A section which ,vould be economically significant for heavy, durable products, such as large machine tools, might well be meaningless for a light product, such as milk." In the light of the foregoing quotation from the Bethlehem Steel case, not only arc the respective local milk market areas, sections of the country but as to ice cream, larger divisions of the United States, or the total United States market, might be considered a section of the country.

(3) Interstate C01nme1'Ce.

1With respect to' the interstate C0111l1erce requisite! Section 7 of the Clayton Act, as hereinbefore indicated, requires that both the acquiring corpora tion and the acquired corporation should be engaged in interstate C01111ne1'CO. It is contended, by counsel for the respondent that under this definition both corporations Hlllst be engaged in the sale in interstate commerce of the particular product involved in the proceeding.

The statute does not so provide, and no decisions have been cited which would support that contention. The complaint in this case is snf!ciently broad to include the purchase of dairy products in interstate commerce to qualify the corporation as being engaged in commerce. One illustration is the case of Tmmessee Dairies, Inc., which operated a milk processing plant in Dallas, Texas Lnd sold, only in Texas, milk which it lmd purchasec1locally and milk, butter and cottage che,ese purchased frolll a supplier in J\iissouri. The materials or products thus Pllrchased are processed or Ina.nufact11red by Tennessee Initial Decision 60 F.

Dairies in Texas into different fonns or other products or re-packaged in different, smaller containers hearing the trade-names and marks of the acquired corporation. Certainly that corporiLtion was engaged in interstate commerce. It purchased raw materials in Olle st.ate and sold them to the puhlic in another state, and the changes that may have taken place in the fonn of the product did not destroy the interstate character of the transaction.

A second illustration was given by calUlsel for the respondent however, namely, Florida Dairies, Inc., which operates a processing pla.nt in :Miami and sold only in Florida, purchase); of heavy cream condensed skim milk and cottage cheese which it purchased from a '\vholesale supplier operating a warehouse in :lfiami, who had previously purchased those items from another supplier outside the State of Florida. Here it is not so clear that Florida Dairies is engaged in interstate commerce, since it a.appears that all the dairy products which it purchased for resale were purchased from local producers or suppliers. In the absence of proof that the product purchased from the wholesale supplier operating a warehouse in 1Iiami \vas shipped dir rectly from the processor outside the State to Florida Dairies, Inc. upon n, previous order, so there \Vas no break in the transportation of the product to Florida Dairies from outside the State, more than -was necessary for the purpose of completing the transaction, such as temporary storage and delivery, the interstate character of the transaction is doubtful. If those products purchased from the wholesale supplier locally in ::liami had come to rest in that warehouse, and had been so mingled with their other products that they lost their original interstate identity, it is not believed that Florida Dairies can be said to be enga,ged in interstate commerce in any sense of the word. There is a distinction bet-ween the facts in the Florida Dairies case and the Tennessee Dairies case -which it is believed is controlling, and that is with respect to Tennessee Dairies, it -was regularly engaged in the purchase of dairy' products, such as milk, butter a,ncl cottage cheese from suppliers located outside the State and the products were shipped direct to Tennessee Dairies. Even though Tennessee Dairies may have cha.nged the form of package, their products only came to rest in the \Varehouseof Tennessee Dairies long enough to ha \' e such change in form take place, and then to be delivered to the ultimate. cllstomer, that is, the retail dealer to ,vho11 the products are sold, or perchance to the consuming public, by retail home delivery trucks. In such ca.se, the inte.rstate transaction was not completed until that sale was made.

, FORE:\0ST DAIRIES , IKC. 1033 944 Initial Decision Upon further consideration, for the reasons stated above, it is found that Florida Dairies, Inc. , in iiami, hereinbefore mentioned in this decision, was not engaged in interstate commerce within the intent and meaning of Section 7 of the Clayton Act. As to all of the other acquisitions, hereinbefore discussed and re.ferred to in the findings of fact, the content.ions of respondent with respect to interstate commerce are rejected. Particular reference is made to Central Dairies Inc., Columbia, South Carolina; Crescent Creamery Co., Sioux Falls South Dakota; Portsmouth Pure Milk Company, Portsmouth, Ohio; Phenix Dairy, 1-10u8ton, Texas; Temlcssee Dairies, Dallas, Te,xas; Banner Dairies, Abilene, Texas; :VIarin Dairymen s Milk Company, Ltd., San Francisco, Ccdifornia; and Golden State Company, Ltd. San Francisco, California.. As to Golden State, the record is clear that it purchased some of the dairy products ".which it resold from manufacturers outside the State of California. It is not belieyell that Section 7 of the Clayton Act requires that such a narrow construction as counsel for the respondent places upon such transactions as hereinbefore indicated, is ten a ble.

(4) P1'bable advel'e effect "pon competition 01' tendency tOlcard monopoly.

(a) Horizontal Acquisitions.

Section 7 of the Clayton Act provides in port that on acquisition of a corporation engaged in commerce is illegal where in any line of commerce, in any section of the country, "the effect of such acquisition lnay be substantially to lessen competition or tend to create a monopoly. " The words "may be " as used in this Section, require proof of a reasonable probability that the acquisition will ha,.e the proscribed effect. The showing or a mere possibility is not suffcient. This was made clear in the report of the Senate Committee, K o. 1775 supra, page 6. That report states:

The words "may be " appear in the hil in defining tile effect on competition of the forbidden acquisitions. Acquisitions are forbidden only ,,'here in any line of commerce in any section of the country the effect "may be" substantially to lessen competition or to tend to create a monopoly. The use of these words means that the bj1 , if ouacted, would not apply to the mere possibilty but only to the reasonable probabilty of the prescribed effect, as determined by the Commission in accord with the Administrative Procedure Act.

Consideration will be given first to horizontal mergers, that is, the acquisition of corporations which, at the time of the acquisition were in competition with the respondent in the sale. of one or more dairy products. In the Bet.hlehem Steel Case, supra citing Congre sional 1034 FEDERAL TRADE COMMISSIOK DECISIO:\TS Initial Decision 60 If.

Committee reports, it was held that the major objectives of Section 7 of the Clayton Act, as amended, are:

(1) to limit future increases in the level of economic concentration resulting from corporate mergers and acquisitions; (2) to meet the threat posed by the merger movement to sllall business fields and thereby aid in preserving small business as an important competitive factor in the .American economy; (3) to cope with monopolistic tendencies in their incipiency and before they attain Sherman Act proportions; and (4) to avoid a Sherman Act test in deciding the effects of a merger.

In dcte.rmining the effect of nny of the horizontal acquisitions of the respondent, it is important to consider the opinion of the IIouse Committee at the time it reported on this amended Section 7, when it stated the purpose of the amendment as follows: ' (Section 7) is intended (to apples when the effect of an acquisition may be a significant reduction in the vigor of competition, even though this effect may not be so far. reaching as to amount to a combination in restraint of trade, create a monopoly, or constitute an attempt to monopolize. The L'united States District Court in the Bethlehem Steel Case supra, in interpreting the amended Section 7, in this respect, stated: A horizontal merger can affect competition in at least two ways. It can have an impact not only on the competitors of the merged companies but also on the buyers 'Tho must reply upon the merged companies and their competitors as sources of supply. 'The purpose of Section 7 is to guard against either or both effects of a merger-if the likely consequence is substantially to lessen competition or to tend to create a monopoly. The Section 7 market must therefore be considered with reference to the two groups- (1) the competitors of the merged companies and (2) the buyers who would be dependent upon the merged companies and their competitors as sources of supply. The Court then referred to the House Committee report, supra, as follows:

(The proscribed) effect may arise in various 'ways: (1) such as elimination in whole or in material part of the competitive activity of an enterprise which has been a substantial factor in competition, (2) inrrease in the relative size of tbe enterprise making the acquisition to such a point that its advantage over its competitors threatens to be decisive, (3) undue reduction in the number of competing enterprises, or (4) establishment of relationships, between buyers and sellers ,yhirh deprive their rivals of a fair opportunity to compete. In the present case, to determine the fun eHcct of the acquisition of the respectiyc corporations involved, the relevant markets to be considered are as follows:

A. The fluid milk market in (1) the State of Texas; (2) the Dlll)as Texas fetropolitan area, including the City of Fort .W orth and the surrounding Counties of Cooke, Collin, Dallas, Dej ta, Denton, EJ1is 1 E. n. Report o, 119). 8\1p1". page S, FOREMOST DAIRIES, IXC. 1035 944 Initial Decision Fannin, Grayson, Hopkins, Jlunt, J ohn80n, lCaufman, Lamar, Parkcr Roclnmll and Tenant; (3) the Metropolitain area in and around the City of Houston, Texas; (4) the Metropolitan area in and ,uound the City of Abilene, Texas; (5) the Metropolitan area in and ,".found the City of San Antonio, Texas; (6) the State of California; (7) the Alameda Contra-Costa l\Ietropolitan area, including the Cities of Oakland, Berkeley and AJnmeda; (8) the San Francisco Metropolitan area; (9) the San :\Iateo :\1etropolitl\n area; (10) the Santa Clam :\1metropolitan area; (11) the Honolulu, Hawaii, Metropolitan area; (12) the Sioux Falls, South Dakota, Metropolitan area; and (13) the Tri- City ietropolitan area, of Bristol, Virginia, and l\:ngsport and Johnson City, Tennessee. In connection with the last named area, the area in and around Bluefield and \Velch, \Vest Virginia, should also be considered.

I-Iaving part.icular reference to the acquisitions in the Stato or Texas it is concluded that the competition which had theretofore existed between the respondent and the respectiye acquired corporations, namely, Tennessee Dairies, Banner Dairies and Phenix Dairy, in the respective market trading areas, \YflS completely eliminated in each or those nlarkets as a result or the acquisitions. Foremost became a major factor in many of the chain stores and supermarkets in those urban market areas, and the consUlning public, buying through the, , was deprived of the benefit of the preexisting competition, except in Dallas where Foremost had not previously sold fluid milk. There Forenlost acquired substantial cha.in store supermarket fluid milk business to complement its ice eream business. In each instance, respondent's shal'e of the market in the sale of fluid 111i1k and ice cream ,yas increased, and, where it had not previously been a major factor in the market, it 'became such as a result or the acquisit.ion and it had a competitive advantage over llmuy of its competitors. In the Abilene nULrket, for iustanee, Forernost milk is sold in more chain stores tha.n any of its competitors, which has given it a distinct competitive advantage. Tn the San Antonio Inarket, the acquisition increased the Foremost share of the milk market, but d1d not raise it to a dominant. position, although it became a major factor \\ith approximately 16% of the milk market and 1nereasec1 its gallonage sales quite substantially in the years succeeding the acquisition. In I-Iouston, the acquisition of the Phenix Dairy gave the respondent an increased competitive advantage, since the Phenix Company was one of the largest independent dairies in Texas at the time it was acquired and had substantial sales in eha-in toreE!j so that, as a result of the acquisition, respondent. \,as 1036 FEDERAL TTIADE CO:MMISSION DECISIONS Initial Decision 60 F. T. able to control between 17% and 25% of the milk market and was a major factor in the market.

It is contended, by counsel for the respondent, that in each of these fonl' Texas ll1markets, the lllunber of independent competitors has increased since Foremost's acquisition, and that, as a result, the acquisitions have not had the competitive impact that would make them in violation of Section 7 of the Clayton Act, ,md that, although the total volmno of sales of respondent in ea,ch of those markets has increased since the acquisiton, its relative share of the respective mark ts has declined. In order for such phenomenon to have the effect of negating the tendency;y to lessen competition and to create a monopoly as a result of the acquisition, there ;\ould have to be some proof that the new companies entering the market took over a segment of the market as large or larger than respondent had acquired: and there has been no shmying to that effect. In all areas, the total volunle of sales of fluid milk increased subshmtially, which accounts for the decline in Foremoses share of the Inarket. Furthermore, complete reliance cannot be placed on postmcrger data comparing activities of Foremost and its eompetitors. The pending complaint and trial might well restrain it from prematurely exereising its increased po-wcr to the probable det riment of competition. But such forchearance to Use the power to lessen competition does not mean that the merger has not created the pO\Ycr nor does it mean that the power will not subsequently be exercised by Foremost.

In this connection it is pointed out that in horizontal acquisitions counsel in support of the complaint are not required to establish with certitude that competition in fact wil be substantially lessened. Their burden is met if the proof establishes a reasonable probability that the merger will substantially lessen competition or tend to create a monopoly. As pointed out in the Bethlehem Steel decision, supra: A requirement of certainty and actuality of injury to competition is incompatible with an effort to supplement the Sherman Act by reaching incipient restraints. (citing Senate Report No. 1775, page 6. The Court in the Bethlehem Steel decision continued: There may be a snbstantiallesselling of competition or tendency to monopoly when a merger substantially increases concentration, eliminates a substantial factor in competition, eliminates a substantial source of supply, or results in the establishment of relationships between buyers and sellers which deprive their rivals of a fair opportunity to compete. Further quotation from the Bethlehem Steel decision indicates that an increase in concentration is a major factor: J H. R. Report No, 1191, supra, page 8.

FOREMOST DAIRIES ) I:\C. 1037 D44 Initial Decision A major purpose of section 7 is to ward off the anti competitive effects of increases "in the level of economic concentration resulting from corporate mergers and acquisitons. Both the Senate and House Committee Reports emphasized. the deep concern of the Congress with the continued trend towards concentration of economic po'\vel' through mergers and acquisitions. The three acquisitions in Texas which are found to violate Section of the Clayton Act are the culmination of a series of smaller acquisitions, so that it can be concluded that the cumulative effect of these acquisitious has a definite tendency to substantially lessen competition in the sale of fluid milk in the entire State of Texas, and to create an oligopoly by t.he respondent and other large processors of milk in the Sblte.

conclusion that The same reasoning is applied in support of the the acquisition of Golden State, in California, by respondent violated Section 7 of the Clayton Act. In that acquisition, not only did the respontlent eliminate the competition which had theretofore existed between it and the Golden State Company in the metropolitan areas heretofore named, but also tended to give the respondent a decided atlvantage over all competitors in the State of California, not only in the production and sale of fluid milk, but also of ice cream. Furthermore, in the California area, there was a definite tendency toward undue concentration in the respondent and three other nation-wide dairy companies: Borden, Carnation a,nd Beatrice. Respondent became the domimmt factor in the fluid milk market in all four of the metropolitan areas ,vhore there had been competition between it and Golden State prior to the acquisition, and it also became the largest including icedistributor of fluid milk and frozen dairy products, c.cream, throughout the entire State.

In California, as in Texas, the acquisition of Golden State c.ulminateel a series of acquisitions of fluid milk processors and distributors so that it can be concluded that the cumulative effect of the acquisitions in California also has a defmite tendency, not only to substantially lessen competition in the sale and distribution of fluid milk and :frozen dairy products "which had theretofore existed in various areas within the State, but also t.o create an oligopoly made up of the respondent and other prolllinent national dairy concerns. In the , et aI.recent decision of -eniteel States vs. Jerrold Electronics Corp. decided in July 1960 by the United States District Court for the Eastern District of Pennsylvania, the Court held: The COllt :Buds that the evidence presented in this case is not of such a quality;y that it. can fairly say that anyone of ,Jerrold' s acquisitions to date, Senate Report ::o. 1775, supra, page 3.

....

1038 FEDERAL TRADE CO:\IMISSION DECISIO Initial Decision 60 F. 'l' when combined with the ODes iJefore it, fOJ'eclosed a suffcient portion of the market so that there is a reasonable probabilty that the condemned effects wil OCCllr. While the Government is not bound to prouucc the best e,jrlence possilJle under most circumstances, divestiture is a harsh and drastic remedy and the Government is obligated to produce evidence from which the court can determine with reasonable accuracy, whether a "jolation has occurred. While the court does not feel that the evidence permits a determination of suffcient precision to justify divestiture, it is adequate for the court to roughly determine the perccntage of tbe llarket foreclosed. 'This figure ,,-auld be between 1.5% and 10%. These figures indicate that Jerrold. s acquisitions are approaching, if not beyond the point where it can be said that it a reasonable probability that they ,vil have the prohibited effects when they are examined in the context of Jerrold's prominent position in the industry. Therefore, the plaintiff is enUtled to the injunctive relief it seeks as to nny future acquisitions.

The Court added, under its Conclusions of La"\v: 'l' he effect of each of the acquisitions by the defendant Jerrold of community television antenna systems and the cHnlulatit:c effect of the entire series 0/ said acqui.sitions is to foreelose competitors of the defendants from a share of the market in community television antenna systcm equipment. The effect of any future acquisitions rna r be to substantially lessen competition find to tend to create a monopoly in the sale and (1istribution of said equipment in various sections of the United States in violation of Section 7 of the Clayton Act. (Italic supplied. J 1 The foregoing decision is cited to indicate the consideration this Federal Court gave to the cumulative theory of acquisitions in alleged violation of Section 7 of the Clayton Act.

The acquisition of l\loanalua Dairy, Ltd. , and Rico Ice Cream Company, Ltd. I-Ionolulu, IIawaii, presents a situation "\\'here the respondent was engaged in the business of selling fluid milk in the Honolulu area a.s :1, result of its previous acquisition of Campos Dairy Products, Ltd., in lD52 so that t.he acquisition of Ionna.lua Dairy constituted a horizontal acquisition, and all competition that had theretofore existeel "\vas eliminated and respondent thereafter controJJecl 00% of the market of fil1iclmilk in that area. Therefore, it is concluded that the effect of this acquisition may be to substantially lessen competition and to tend to create a monopoly in the sale fluid milk in Honolulu, Ha."\\aii, in violation of Section 7 of the amended Clayton Act.

The same principle applies io the acquisition of the Crescent Creamery Company, a. South Dakota corporation, Sioux Falls, South Dakota. The respondent was in that area through Dairyland Creamery, a subsidiary of the Bridgeman-Hussell Company, and as a result 1 Commerce Clearing House, 1960 Traue Cases. Par. 69, 784. FOREMOST DAIRIES IKC. 1039 944 Inital Decision of the acquisition of Crescent Creamery, all competition which ha.c theretofore existed bet,yeen respondent and Crescent \vas eliminated unci responl1ent acquirell a dominant competitive position in that area. The effect of this acquisition \Vas to substantially lessen competition in the sale fmcl distribution of fluid milk and ice cream in t.he seetion of the country in and around Sioux Falls, South DaJmta in violation of the amended Clayton Act.

Also, as to t.he acquisition of Southern J\Iaid, Incorporated, in Bristol, 1ljrginia, and the ,Veldl )Iilk Company in 'Veldl, "\Vest Virginia it is concluded ih Lt as a result of this aeqllisition, not only was there a substantial lessening of competition between Foremost and the acquired companies in the sale of fluid milk and ice cream, but respondent became a major factor in the fluid milk market in the Tri- City area of Bristol, Virginia; and tT ohnson City and IGngsport Tennessee, and t.hereby the acquisition tended to create a monopoly in respondent in that area in violation of the amended Clayton Act. (b) Conglomerate Acquisitions.

Attention \\i11no\'\' be given to those acquisitions involved in this proceeding which may be termed conglomerate; that is to say, of corporations that were engelged in businesses in which the respondent was not engaged at the tinle of the aC(luisit.ion. In the House Report accompanying the amendment to Section 7 of the Clayton Act enacted in ID50, supra. (page 11), the follmving language is found: Because Sedion 7, as passed in 1914, prohibited, nmong other things, acquisitions ,,,hleh substantially lessen competition between the acquiring and the ilcquired firms, it has ueeu thOllght by some that this legislation applies only to the so-called horizontal merger. But in the proposed bil, as has been vointed ant above, the te!;t of the effect of comiJetition behveen the acquiring rmd the acquired firm has been elimina tell. One reason for this action \Ya!; to make it clear that this bil is not intel11ed to prohibit all acquisitions among competitors. But there is a second reason which is to make it clear that the bil applies to all types of mergers and acquisitions, vertical and conglomerate as ,veil as horizontal, which have the specified effect of subsj-alltially lessening col1jJetition . . " .. or ten(Iing to create a monopoly. Reference is made at this time to the follo\ving acquisitions: ,Vestern Condensing Company, Petalmna., California, engaged in the manufaetul'e of dried whe:y and other milk byproducts; International Dairy Supply Company, Oakland, California, engaged in the manufacture of recOlnbined milk and other dairy products not manllf teturecl by the respondent, and in the sale of such products in foreign commerce and to U.S. military installations in the South Pacific; Internat.ional Dairy Engineering Company, affliated with International Dairy, which does some nianufacturjng of anhydrous fats and Initial Decision 60 F.

milk solids. These are the only genuine conglomerate acquisitions involved in this case. Due to the lack or evidence as to any kind of adverse effect upon competition growing out or the acquisition or these concerns, the only conclusion that can be drawn is that the allegations of the complaint have not been supported by the proof. There are a number of other acquisitions, however, \which have been designated by counsel in support of the complaint as "market extensions in that they include acquisitions or corporations engaged in the processing and sale of fluid milk and the manufacture and sale of other dairy products, but in a geographical location where the respondent was not engaged in such business prior to the acquisition so there was no pre-existing competition. The rollowing acquisitions fall within this category: American Dairies, Incorporated, Kansas City, Missouri; Portsmouth Pure Milk Company, Portsmouth, Ohio; Philadelphia Dairy Products, Inc., and a number of its subsidiaries Philadelphia, Pennsylvania; lve s Ice Cream COlnpany, l\iinneapo1is linnesota; Marin Dairymen s :Milk Company, Ltd., San Francisco California; Widemirc, Inc. , Sylacauga, Alabama; Old Hundred Inc., Southbury, COl1lccticut; Bridgeman-Russell Company, Inc. Duluth, l\iinnesota, and a number of its subsidiaries; and Campos Dairy Products, Ltd., Honolulu, Hawaii. .While these acquisitions are not in the strict sense of the word conglomerate acquisitions, in so fat as the effect upon competition or tendency to create a monopoly is concerned, they must be treated in the same general category, and the same tests should be applied to such acquisitions to determine whether or not they are violations of Section 7 of the Clayton Act. (c) Market Extension Acquisitions.

Considering first the acquisition of Philadelphia Dairy Products; at the time of this acquisition, Philadelphia Dairy was a. substantial but not dominant factor, being probably the third largest seller of fluid milk in the Philadelphia market with about 9% of the fluid milk market in that area. As an example of this type of acquisition, it is contended by counsel in support of the complaint that such an acquisition is a violation of Section 7 of the Clayton Act for the following reasons:

(a) Foremost entered a new area of effective competition. (b) Foremost obtained, at the time of entry, substantial sales volume and the benefits of an established business. (c) Included among these benefits were established relationships with buyers who were probably buyers of Foremost's full line of products.

FOREMOST DAIRIES , IKC. 1041 944 Initial Decision (d) At time of its entry, Foremost became a substantial competitive factor in each new area of effective competition. (e) Through the use of agreements not to compete, executed by Foremost and the various acquired concerns, or key personnel, Foremost forestalled each of these acquired concerns, or key personnel, as potential competitors in each of the areas of effective competition. (f) Prior to each acquisition, there existed a substantial number of small competitive units in each area of effective competition in which that acquisition occurred.

(g) As a result of each acquisition, Foremost supplantBd the acquired concern as a competitive factor. Foremost was a substantially stronger competitive unit than the unit it replaced. Thus, as a result of the acquisition, each of the slllall competitive Ullits was confronted with a far stronger competitor. As a direct result of each acquisition a material change occurred in the competitive stn1Cture, and a substantial disparity between these small competitive factors and Foremost was created, all to the detriment of these small competitive units and to the detriment of potential competition. In opposition to the foregoing contention, counsel for the respondent has pointed out that no effort \vas Inade by counsel in support of the complaint to show any actual injury suffered hy smaller single plants or independent concerns in the local markets where respondent's acquisitions competed, and that there was no evidence to demonstrate that respondent had attained any advantage over any competitor in such areas as a result of the acquisition. It is concluded that there is no violation of the Act when the acquisitions involved were in areas where respondent had never been in business, hereinbefore described as market extensions, in the absence of evidence that the corporations acquired by respondent in those respective areas occupied a dominant position in the dairy industry or some segment thereof, or that respondent had used competitive methods, such as was found in The Procter & GamhJe Company case, in which the hearing examiner found various practices to have been used by the respondent therein, to expand its business, which demonstrated the existence of undue competitive power in the industry in which the respondent had not been theretofore engaged. It should he noted that in that case, the respondent acquired approximately 45% of the share of the market in liquid bleaches, whereas in none of the market extension acquisitions involved in this proceeding has the respondent obtained such a share in any of the fluid milk or ice cream markets as a result of any such acquisition.

1042 FEDERAL TRADE COMMISSION DECISIOXS Initial Decision 60 F.l'. Taking up the contentions of counsel supporting the complaint, it is not believed that the entry by Forcmost into a, new are.a. of effective competition is per se evidence of either n substantial lessening of COlllpetition or a tendency to monopoly, even though, as indicated Foremost obtained, at the time of the entry, a substantial sales volume and the advantage of an established business. T Or docs the fact that Forenlost becmne a substantial, although not a dominant, factor in the He\V area of effective competition as a result of the acquisition give it a decisive competitive advantage, unless the proof shows that respond eut became such a powerful factor that it was able to, a.nd did, utilize monopolistic practices to a,dvance its position in the new area. of competition. ot only were there smaller units in each area. of effective competition in which the acquisitions occurred, but it also appea.rs that there "were a number of competitors larger than, or equal in size the respective acquired corporations. Also, even if J, oremost 'vas ft stronger competitive lUlit than the unit replaced, this in and of itself is not suffcient to make the t.transaction illegal in the absence of evidence of the use of unfair practices to expand its business. It is believed that Congress intended, in the arne,l1chnent to Section 7 of the Clayton Act, prohibiting acquisitions by a corporation engaged in e01l1nerce" of assets as well as stock 'Of other corporations also en gaged in commerce, to include only those a.cquisitions which would have a tendency to substantially Jessen competition or t.end to create a monopoly in (a) the line of commerce and section of the country in \\hic.h the aC(luiring c-orporation was engaged; or (b) in a. section of the country in "which the acquiring corporation had not theretofore been engaged, "hereby the merger of the two corporations placed the acquiring eorporat.on in such a dominant position that it would have a decisive nd1 antage over its competitors in that other area. as a result of the accluisition. This is indicated by R. statement of Senator KiJgOl' in the hearing before the Subcommittee on Anti Trust and 1\1onopo1y of the Senate Judicial)' C01ln1ittee, Slst Congress, 1st Session, page 101, where the milk industry was under c-onsicleration, and the acqnisition history of the Borden )iilk Company was being c1iscussed before the COllllniUe, . Senator lGlgore, referring to an acquisition within his knowle-dge in :Huntington, "'Vest Virginia, said: Bonlen )1iJk came in and bought out the dairies, There were two or three outfits operating in there. It could not create a monopolr, They bought an outlet from a rlairy company that wantell to sell, who bad customers, '1'110 harl a plant, They came in anll bought tlleiI" plant and prod.'€ded to go into the milk mill ice cream business in that cOilmunity in competition with the others. I cannot see that that would be a ,violation of the law, but I can see where ij they had ("omein and bOllght Ollt all oj the dctiries, or ij there 7w.(l, been only one FOREMOST DAIRIES, E'W. 1043 944 Initial Decision other dairy and they had bou.ght both of them, then that looks to me like it 'Would be a violation of this law. (Italic supplied. Following the line of reasoning indicated above, and the conclusion reached with respect to Philadelphia Dairies, it is believed, by the same reasoning, that the acquisitions of the other companies named at the beginning of this section are not in violation of Section 7 'Of the Clayton Act.

It is also urged by counsel in support of the complaint that acquisitions, individually or cumulatively, which give rise to the proscribed adverse competitive effect, be declared unawful without regard to the particular horizontal, vertical or conglomerate characteristics involved. Reference is made iu support of this proposal to the language or House Report o. 11m, 81st Congress, 1st Session, page 8. The italic is that made by counsel in support of the complaint in their brief:

Acquisition of stock 01" assets have a cul1wlative effect, and control of the market suffcient to constitute a viola-tion of the Sherman Act may be achieved not in a single acquisition but as a result 01 a series of acquisitions. The bill is intended to permit intervention in sitch a cwnmlative process when the effect of an acquisition may be a significant reduction in the vigor of competition, even though this effect may not be so far-reaching as to amount to a combination in restraint of trade, create a monopoly, or constitute an attempt to monopolize. Su,ch an effect may arise in various way,';;: such as elimination in whole or in material part of the competitive activity of an enterprise which has been a substantial factor in competition increase in the relative size of the enterpn"se making1! the acqu'isitfon to such a point that its ad.vanta.ge over its compeUtors threatens to be decisive, undue red'lIction in the nmnb61' 01 cornpeUnq enterprises or establishment of relationships between buyers and sellers which deprive their rivals of a fair opportunity to compete.

A number of cases are cited in support of the foregoing contention including Pillsbury, Crown Zcllerbach, Scott Paper and Brillo, among the Federal Trade Commission decisions. Other cases mentioned, not before the Federal Trade Commission, \fere the American Crystal Sugar Company YB. Cuban American Sugar Co" and United States "8. Brown Shoe Company. AI1 or these cases, howe"er, rerer to horizontal acquisitions and, in the case of the American Crystal Sugar C;company a,nd the Brown Shoe Company, the products \Vcre, in fact of national distribution, sugar being a commodity used in every household and shoes a commodity in general use by the public everywhere. These products, of course, are not comparable to Inilk, cream and ice Cream, which are perishable and Inust be consumed, under ordinary circumstances, within a reasonable length of time aft.er production. The field or effecti"e competition is usually local in metropolitan market areas. Such concerns as Foremost and its large nation-wide COff- 719-603--64-- 1044 FEDERAL TRADE COJ\ISSIOC' DECISIOC'S Initial Decision 60 petitors having multiple plant distribution, are compelled to meet local ccmpetition and, while they have an advantage over such local competition, as hereinbefore indicated, it is not such an advantage that it can be measured in national statistics of production and sale of fluid milk and ice cream.

It is contended by counsel in support of the complaint that each acquisition herein has the following comlTIOn characteristics: 1. The industry in which the acquisition occurred was one which vnLS characterized by a high degree of concentration, and a significant disparity between the dominant concerns and the remaining local, individmtl competitors.

2. Each acquired concern has been eliminated as a potential competitor.

3. Substantial competitive advantage has accrued to Foremost, the acquirer.

Counsel in support of the complaint also advanced the contention that the cumulation of the second acquisition with the first acquisition in the series of acquisitions covered by the complaint herein, was productive, on a cumulative basis, of the proscribed adverse competitive effect. Furthermore, each succeeding acquisition, when considered in connection with the acquisitions which preceded it, constituted a further aggregation of competitive power and strength which was reflected in each area in which Foremost competed as wen as throughout the industry nation-wide. The following quotation is taken from t their brief:

The examiner is respectfully advised that we do not thrust upon him the burden of selecting a point at which the acquisitional accumulation became un. Jawful. It became unlawful at its very beginning, that is, acquisition number one plus acquisition number two. This must be the rule, for to delineate the pale of legality at some further point is, by implication, to encourage mergers by the remaining segments of the industry up to the line of demarcation. To do so would be to compound the merger movement within an historically local industry \"\here a cumulative merger in the balance of interests, cannot prevail. In any event, where cumulation produces the unlawful effect, we contend that the cumulation is unseverable. Once unlawful effect is achieved, the whole cumulative series becomes tainted with an ilegality which cannot be cured by partial divestiture.

Because eacb of Foremost's acquisitions have been part of a continuous and integrated program of expansion, each of them must be evaluated in relation to the others which preceded it, to determine tbe cumulative results throughout the Lnited States. Only by so considering them, can any realistic view be obtained as to the changes in the competitive structure in the dairy industry which has occulTed in "any section of the country" as the direct result of the Foremost acquisitions. .Moreover, when this course is followed, the ultimate conclusion of compounded ilegality is inescapable.

FOREMOST DAIRIES, IKC. 1045 944 Initial Decision When considered in this light, the evidence overwhelmingly supports our position that there is a reasonable probabilty of substantially lessening competition based primarily on change in industry structure as well as the fact that competition has been foreclosed in a substantial share of the line of commerce affected.

In the first place, it shows that actu.al competition has systematically and continuously been eliminated by the acquisitons of Foremost. Secondly, an increasing share of total national product of fluid milk and frozen desserts are held by the six largest firms (including B'oremost). This concentration increase in the dairy industry is directly related to Foremost program of expansion by acquisition.

Additionally, the evidence conclusively establishes the elimination of potential competition. The very existence of the Foremost Dairy empire in many communities must be regarded as a deterrent to those who ,vould otherwise be wiling to enter the field. There is, of course, no way to measure the extent of this influence, but it certainly should not be ignored. ::lore importantly, however, the acquisition of the dairy concerns and their assimilation into the Foremost organization forcstalled potential competition. The cumulative effect of these mergers was to destroy "potential competition in a way later to malic actual competiton impossible. (Citing tlle case of Aluminum Company of America vs. Federal trade Commission, 284 l". 401, 408. Reference is also lllade to the J errold Electronics Case, supra., in support of this theory. However, it should be noted that in that case there 'vas 110 order of divestiture entered, but merely an injunction to prevent further acquisitions. Counsel in support of the complaint emphasized the fact that the dairy products industry, and particularly the fluid milk and ice cream segments, is dominated by a small nullbel' of giants; K ational Dairy Products Company, Borden Company, Foremost Dairies, Inc., Beatrice Foods, to mention several, and that in addition, the dairy industry is characterized by a number of concerns which operate in captive markets, such as the Lucerne Division of Safeway Stores, which processes and distributes dairy products, particularly fluid milk, to its own captive outlets. Reference is also made to the fact that there arc remaining independent fiuid milk and ice cream processors located in the va.rious communities throughout the United States, and the point is made that the independent locals are less favorably situated than Foremost, which has reached a nationwide Inagnitude by virtue of acquisitions, combined with cOITlpetitive strength which begets further acquisitions. Finally, it is contended that the competitive thrust of Foremost includes its advertising, its discriminatory pricing, its financing of customers, and its investment in cabinets and equipment which were used by the customers. Reference is then made to House Report 1191 sist Congress, 1st Session, page 3, in the following language: Apart from this general effect, the current movement has had the result of raising the level of economic concentration in a number of very specific ways. 1046 FEDERAL TRADE CO:MISSION DECISIONS Initial Decision 60 F.

In the first place, recent merger activity has been of outstanding importance in several of the traditionally " small business " industries. More acquisitions and mergers have taken place in texties and apparel and food and kindred products-predominantly "small business" fields-than in any other industries. Furthermore, in certain other industries whicb have traditionally been considered as "small business" fields (such as steel drums, tight cooperage, and wines) nearly all of the industry has been taken over by very large corporations. Finally, the outstanding characteristic of the merger movement bas been that of large corporatiolls buying out small companies, rather than smaller companies combining together in order to compete more effectively with their larger rivals. Reference is also made to the language of Judge .Weber i.n the Brown Shoe Case, supra:

We can only eat an apple a bite at a time. The end result of consumption is the same, whether it is done by quarters, halves, three-quarters or the whole, and, it is finally determined by our own appetite. A nibbler can soon consume the whole with a bite here and a bite there. So, whether we nibble delicately, or gobble ravenously, the end result is, or 'can be, the same. Consideration has been given to the foregoing contentions of counsel in support of the complaint, and while many of them may be applied to the acquisitions which have been found to be ilegal in this decision because of adverse effects upon competition in certain market areas and sections of the country, we are unable to agree with aU of the contentions. In the first place, there is nothing in any of the decisions or quoted excerpts from reports of House Connnittees or Senate Committees, which is in support of the contention tlHtt the acquisition of corporations in geographical areas where respondent has never done business is a violation of the stat.ute because of the cmnulative effect upon potential competition. Furthermore, there is no language in either decision or Committee report to support their contention that it is not necessary to c1eternline the point at which an acquisition or accumulation becomes unlawful; that it became lUllawful at its very beginning, or that where a cumulation of acquisitions produces the unlawflll effect, the cmnulation is unseverable, or that once lIDlawful effect is aehieved, the whole clIDlulative series becomes tainted with illegality which cannot be cured by partial.l divestiture. The adoption of such a theory would put American business in such a straight jacket that it would be impossible for a corporation, in any industry, to expand by acquiring concerns in other geographical areas. It is our opinion that so long as Foremost, in its program of expansion, ,vent in to geographical areas in vduch it had not theretofore been engaged in the dairy business, a,nel purchased existing processors of dairy products that were not in a, dominant position in the relevant market area in point of production and sales or share of Inarket at the time of FOREMOST DAIRIES, INC. 1047 944 Initial Decision their acquisition, thereby gaining a decisive competitive advantage immediately in that area, such acquisitions were not in violation or Section 7 or the Clayton Act. In the present case, where Foremost made its mistake was in making further acquisitions in those areas where it had alrcady established itself and where, as a result or such second or third acquisition, it was placed by this cumulative process in a position of leadership and thus gained a decisive advantage over its competitors. It is concluded that these latter acquisitions are the only acquisitions or this type in this particular industry that are in violation or Section 7 or the Clayton Act and that is because of the elimination of substantial competition that existed between the acquired and the acquiring corporations, and the dangerous tendency thereby to create a monopoly or oligopoly in the relevant market area. The illcgality or the last .acquisition would not necessarily make the first one ilJega1. It is the cumulative efJ'ect upon competition that determines the legality or illegal1ity of the second or later acquisition. The record does not contain competent evidence to support the contention or proposed finding that respondent, as a result of the acquisitions involved in this proceeding, had engaged in illegal discriminatory pricing; financing of its customers; or investment in cabinets and equipment which were used by its customers. Insofar as the use of national advertising is concerned, the evidence in the record will not support the contention of a c0111petitive advantage existing in the respondent, mainly because national advertising is not a good ,veapon in obtaining business in local areas. In other words, the experience of the respondent did not support such an alleged advantage. It is true that the offcials of respondent contemplated speh an advantage at the time they acquired Golden State, but subsequent developments did not support that belief and Foremost has not increased its advertising budget in proportion to the acquisitions, nor is there any evidence indicating that it has utilized national advertising to a greater extent since the acquisition than it did bel are.

In accordance with the foregoing decision, the follo\Ving order is entered.

ORDER 01" DlVESTIT"CE It is ordered That respondent, Foremost Dairies, Inc., a corporation, and its offcers, directors, agents representatives and employees, shall divest itself absolutely, in good raith, or an stock, assets, properties, rights and privileges, tal1gible or intangible, including, but not limited t.o, all contract rights, plants, machinery, equipment, tradenames, trademarks, and good wjn acquired by Foremost Dairies, Inc. , Initial Decision 60 F.

1lS a result of the acquisition of the stock, share capital, or assets of 'each of the following named corporations: Banner Dairies, Inc., Abilene, Texas; Phenix Dairy, Houston, Texas; Tennessee Dairies, Inc. DaUas, Texas; Southern Maid, Inc., Bristol, Virginia, and The IVelch Milk Company, IVclch, IVcst Virginia; Crescent Creamery Co., Sioux Fails South Dakota; Moanalua Dairy, Ltd., and Rico Ice Cream Company, Ltd., Honolulu, Hawaii; and Golden State Company, Ltd., San Francisco, California, together with a11 plants, machinery, bnildings improvements, equipment, and other property of whatever description that had been added to or placed on the premises of each of the former above-named corporations by respondent, as Inay be necessary to restore each of them as a going concern and to establish each of them as an effective competitor in substantially a11 the same basic lines of comnlcrce in which each of the respective acquired corporations was engaged at the time of their acquisition.

Pending divestiture, Foremost shall not make any changes in any of the above-mentioned plants, ll1machinery, buildings, equipment, or other property of whatever description, which shaU impair their present rated capacity for the production of their respective dairy products, or their market va,lue, unless said capacity or value is restored prior to divestiture.

Respondent in such divestiture shall not sell 01' transfer, directly or indirectly, any of the stock, assets, properties, rights, or privileges tangible or intangible, acquired, added, modified or placed on the premises of any of the above-named concerns by respondent, to anyone who, at the time of divestiture, is a stockholder of respondent, or to anyone who is or was an offcer, director, representative, employee or agent of, or otherwise, directly or indirectly, connected with, or under the control or influence of, respondent. It is further ordered That, in said divestiture, respondent shall not sell or transfer, directly or indirectly, any of the stock, assets, properties, rights or privileges, tangible or intangible, to any corporation orto anyone, who, at the time of said div stiture, is an offcer, director employee or agent of such corporation which, at the time of such sale or transfer, is a substantial factor in the dairy products industry, if the eireet of such sale or transfer might be to substantially lessen competition or tend to create a monopoly or oligopoly in anyone of the said d"iry products, iu any section of the cOlUltry. It is fltrther ordered That re.spondent, Foremost Dairies, Inc., shall within six months from the date of the service upon it of this order submit in 'writing for the consideration and approval of the Fcde.ral FOREMOST DAIRIES, IKC. 1049 944 Opinion Trade Commission, its plan for carrying out the provisions of this order, such plan to include the date within which compliance may be effected, the time for such compliance to be hereafter fixed by order of the Commission.

OPINION OF THE COMJlnSSION By DIXON Oommi88ioner:

The complaint hemin charges that the acquisitions since 1951 by respondent, Foremost Dairies, Inc., of certain named corporations engaged in commerce, taken individually or collectively, violated Section 7 of the Clayton Act and that said acquisitions, together with respondent' s acquisition1 of certain unincorporated concerns violated Section 5 of the Federal Trade Commission Act. The hearing examiner in his initial decision filed December 9, 1960, held that the a!Jegatially as to certain of the individual corporate acquisitions were sustained under the Section 7 charge but that the allegations were not sustained as to the other such acquisitions. He ruled that Section 5 has no application in this easc. Both sides have appealed. In order to determine the merits of the respective appeals, it is first necessary to view the acquisitions charged herein against the background of respondent's over- al1 growth and development, as reflected in the record before us. Thus, the present Foremost Dairies Inc., a K ew York corporation, was evolved from its original formation a.s a Florida corporation, which, in October 1931, succeeded to an car lieu' corporation known as Foremost Dairy Products Corporation. Between 1932 and 1950, Foremost acquired 41 dairy businesses, expanded its operations into 44 southern communities and increased its annual sales from $1 000 000 to 848,160 059. During 1951-1955, the period covered by the complaint, Foremost acquired 52 dairy and other businesses. All of the major acquisitions for which sales data are given in the record involved firms with combined sales of $342 446 744 in the year preceding acquisition. The importance of these mergers to respondent's growth is attesteel by the fact that in 1955 Foremost had sales of 8388 068 990. Hence, respondent' s 1950 sales of $48 000 000, plus the sales of $342 000 000 of the businesses it acquired during 1951-1955, were almost identical to its 1955 sales. This is unmistakable evidence that respondent' growth beh-,een 1950 and 1955 'was the direct result of its numerous mergers. I\foreover, large companies it acquired likewise had used mergers extensively in their growth. For example, Golden State Company, Ltd., of California, had acquired thirteen companies prior 1050 FEDERAL TRADE COMMISSIOC' DECISIONS Opinion 60 F.

to its acquisition in 1054 by respondent. It is perhaps significant to note at this point that the House Report accompanying amended Section 7 1 expressed concern because a Federal Trade Commission merger study showed considerable merger activity in the food industry during 1040-1047. That study reported 270 mergers in all industries classified as being in food and kindred products. Yet respondent alone had made over 00 acquisitions (not including the acquisitions made by companies it acquired) up to 1055. Principally through its successive mergers, respondent has grown to the point where it has become at least the fourth largest dairy farm in the country. On its face, therefore, respondent's merger pattern is one which we must scrutinize carefully to determine whether its acquisitions violate the Congressional intent behind amended Section 7. This is particularly true in view of the decline in the number of small dairy businesses and in light of certain teclmologieal aud market changes in the dairy industry which will be discussed in more detail later in this opinion.

, as "Vo begin our scrutiny with the realization that Section 7 amended, was designed to prevent Olle company or a group of companies from using ll1el'gers to distort irrevocably market structures in small business industries. "Ve are well aware that it is during times of economic change that many industries have been transformed via mergers frolll relatively competitive olies to oligopolistic ones because public understanding was not a1erted in time to curb such developments. It is apparent from a careful reading of the legislative history and court interpretations that Section 7 is concerned prccjsely with such industries. As the court stated in the Crown ZeUeTbach case: 2 .Anyone attempting to formulate the test to be applied in determining whether a given merger is one whose effect "may be substantially to lessen competition or to tend to create a monopoly" should begin 'with the reading of the House and Senate Revorts that accompanied the bil which brought about the amended section. Thus the House Report contained an extensive discussion of the evils of business concentration. It noted 445 corporations owned 51 percent of the country s gross assets. In many great industries three or four firms controlled most of the business. Thus concentration was stil increasing, and much of this was through mergers. Small industries, small businesses, were r&viclly being wiped out by mergers through which they were being absorbed by big firms. Those in charge of the bil considered that "these mergers are usually the forerunners of collectivism and socialism, and noted the lessons from other 1 ILK Report :No. 1191 , 81st Cong.. 1st Sess., page 3 (1949). 2 Crown Zellerba-ch Corp. v. Federal Trade CormnissioJl 286 F. 2d 800 (9th Clr. 1961). FOREMOST DAIRIES , INC. 1051 944 Opinion countries where opportunity had been vested in the bands of a few: "the result has been that either sociali2)ation or a totalitarian form of government has taken over In the Bethlehem Steel case ' Judge 'Veinfeld stated as follows concerning the legislative backgrowld of amended Section 7: A fair reading of both the Senate and House Committee Reports leaves no doubt as to its (Section 7, as amendedJ major objectives. As stated in those Reports they were, in S'ome instances haec verha, (1) to limit future increases in the level of economic concentration resulting from corporate mergers and acquisitions; (2) to meet the threat posed by the merger movement to small business fields and thereby aid in preserving small business as an important competitive factor in the American economy; (3) to cope with monopolistic tendencies in their incipiency and before they 'attain Sherman Act proportions; and (4) to a void a Sherman Act test in deciding the effects of a merger The legislative history further indicates that Section 7 was designed to intervene in the "cumulative process" by which a competitive industry may be completely transformed as a result of successive mergers. The foregoing discussion reflects the need for reviewing mergers of an 'acquiring concern in their industrial contexts. This requirement wa;s emphasized by the court in the Brman Shoe case ' when it stated: Certainly it is evident that Congress intended to encompass minute acquisitons which tend toward rnOnOIJoly and to do so in their incipiency. Courts have recognized the necessity to act toward violations as they begin, rather than wait until it has become a tait accompli. See dupont and Bethlehem Steel cases supra.

In a determination of these factors it becomes necessary to review, not only the practices of the companies involved, but also the trends in the industry. The Congressional expressions and the decisions quoted above have special relevance for this caso. The legislative reports indicate special concern with the trends then already under way in certain industries. United States v. Bethlehem Sted. Corp. 168 F. Bupp. 576 (S.D. Y. 1958). 4 "Acquisitions of stock or assets have a cumulative effect, and control of the lDarket suffcient to constitute a violation of the Sherman Act may be achieved not in a single tlcqulsltion but as a result of a series of acquisitions. The biI is intended to permit Intervention in such cumulative process when the effect of an acquisition may be a sig. nificant reduction in the vigor of competition, even though this effect may not be so farreaching as to amount to a combination in restraint of trade, create a monopoly, or constitute an attempt to monopolize. Such an effect may arise in various ways: such as elimination in 'whole or in material part of the competitive activity of an enterprise which has been a substantial factor in competition, increase in the relative size of the enterprise making the acquisition to such a point that its ad,antage over its competitors tlJreatcns to be decisive, undue reduction in the number of competing enterprises, or establishment of relationships between buyers and sellers which deprive their ri,als of a fair opportunity to compete." (n. H. Report Ko. 1191 Iwpm page 8. ) See also Senate Report o. 1775 81st Cong., 2nd Sess., page 5 (19::O).

United States v. Brown Shoe Companv, 179 F. Bupp. 721 (E.D. Mo. 1959). 1052 FEDERAL TRADE COMMISSION DECISIOKS Opinion 60 They viewed with concern the demise through mergers of many businesses in the "traditionally" small business industries; and the House Report specifically mentioned "food and kindred products" as one of the industries it had in mind.' The dairy industry is one of the leading hold-outs of the small business segment of the food industries. ,iT e come, therefore, to a consideration of the competitive situation existing in that industry. l)oth respondent and counsel supporting the complaint emphasize that substantial and far-reaching technological and market changes have occurred in the dairy industry in recent decades. On many points they agree. Until recent dceadc3 lnany producer-distributors operated in the various markets located throughout the country. Much of the remainder of the industry was composed of single plant independent dairy concerns. Technological changes favoring larger scale processing plants, public health regulations setting higher quality standards, bonding of J1lllk plants to insure payment of producers, the advent and expa.llsion of Federal and State Jna1'keting orders, a.ll conspired to \"ork agajl1st the small proce,SSOl'. The result has been a substant.ial and continuing decline in the number of independent dairy finns. Although respondent tLud counsel supporting the complaint agree on this point, they disagree as to the extent and implieatiOJls of this decline on competition in the various loca.1 m trkets. \V111lc the statistical information in this record on all of the local markets is not complete, there is suj-ficient evidence to permit portraiture of the oro ad industrial transformation occurring in this industry.

Respondent and counsel supporting the complaint agree that the day of the old-time produce.r-distribl1tor with a few co\Ys and a delivery route has passed. lie 11a8 become an economic anomaly outmoded by progress. The evidence as to the extent of decline in the number of independent processors, quite apa.rt from the number of producerdistributors, is somewhat clouded. 1-1e1'e too, ho\\ever, the number clearly has declined. In California, one of the largest growing areas of dairy product consumption, the number of milk processing plants declined by 70 between 1952 and 19.17. Similarly, between 1950and 1956-57 the number of concerns located in Florida selling fluid milk declined substantially. This decline is especially remarkable considering it occurred in one of the country s must rapicUy growing o "In the first place', recent mcq;er activity has been of outstanding Importance in several of' the traditionall;;, ' small business ' industries. ::lore acquisitions and mergers have talcen place in textiles and apparel find food and kindred products-predominantly 'small busi- Iless ' tieJds- than in any other jndnstries. (IT. R. Report No. 1:HJ1 S1I.p)"! page 3. FORE:\OST DAIRIES , INC. 1053 944 Opinion areas; the population of the State of Florida increased by 51. between 1950 and 1960.

Respondent objected to the admission in evidence of certain Dairy Credit Books upon which the conclusion as to the decline of fluid milk sellers in the State of Florida is based, primarily on the ground that they are not a precise indication of the companies competing in a particular area. ""Vhile we agree that these data arc not precise, there is no reason to disqualify them as an indicator of the declining trend in this period, particularly when viewed with the other evidence of record. loreover, common sense argues that this source is more likely to understate than overstate the decline in firm numbers since there are fewer small, obscnre processors with each passing year. Counsel supporting the c01nplaint presented for other areas evidence aimed at showing a decline in the number of firms; this evidence suggests an even greater decline for some of these areas than in Florida. .L'lgain, respondent questioned the accuracy of these data, and with some merit. IIowever, if the various data-especially those mentioned above relative to Florida and California-are viewed within the context of the testimony of respondent' s own witnesses, the general thrust of the evidence is inescapable. The number of firms sening fluid milk has declined substantially during the Jast decade and very probably during the last two decades.

Tho next area of significant disagreement between COlilsel is with respect to the changing importance of certain large dairy firms. The record indicates that in 1956, the year in which complaint issued against respondent, there were eight large firms with sales exceeding $100 000 000, including sales of nondairy products. These firms, in the order of their size, were National Dairy Products, Borden, Foremost Carnation, Beatrice Foods, Arden Farms, Pet 1\1i1k Co., and Fairmont Foods.

Respondent' s ,vitness, economist 1\1. A. Adelman, estimated a universe of total dairy industry sales which was the subject of much controversy between counsel. As discussed below, we agree with the hearing examiner s finding that 1\fr. Adelman s data contained errors and statistical biases ,,,which make them unuseable as precise indicators of the. change in the total sales of dairy products. The combined effect of these errors is to overestimate the extent of increase in the universe of total dairy sales over a period of time, and thereby understate the growth rate of large dairies. Despite this defect in Ir. AdeJ1lan universe, it is clear that these eight large firms have grmvn much more rapidly than have total dairy sales. ,Vhereas Mr. Adelman estimated Opinion 60 F.

that between 1935 and 1956 total dairy sales increased by 346%, the total sales of these eight large dairy firms grew by 44%. Respondent contends that the relevant comparisons of sales growth is not the total sales of these large dairies, but their total sales of dairy products. In this connection, respondent introduced evidence as to the total dairy product sales of four companies-National, Borden Beatrice and Arden.

According to Mr. Adelman s statistics, between 1950 and 1956, total dairy sales increased by 40.2%. The combined sales of the above four large dairy firms increased by 40.5% and the rest of the industry (including Foremost) by 40.1 %. Even if Mr. Adehnan s universe estimates were valid, removal of Foremost from the "rest of industry category and combining it with the large dairy category sheds considerable Jight on the over-aU growth trends of Jarge dairies. On this basis, the five Jarge dairies grew by 61.0% and the rest of the industry (excluding Foremost) grew by 33.5%-' Using Mr. Adelman s own universe estimates, the dairy sales of Foremost and the other four dairies in the study grcw significantly more rapidly than did the rest of the industry.

The record warrants an additional significant inference. Mr. AdeJman s analysis excluded Carnation, which was larger than the two smallest firms included in his study, Arden and Beatrice. The Commission study discussed below reveals that during 1950- , Glernatian s frozen dessert and fluid milk sales grew more than twice as rapidly as did total industry sales of these products. Subtraction of Carnation from the "rest of industry" category would further broaden the rate gap between the largest firms and the rest of the industry. Although the Adelman study leaves much to be desired as a true indicator of relative growth rates, it does permit the inference that the combined sales of six large dairies, National, Borden, Beatrice , grew significantly mote rapidly Foremost, Ca.rnation, and Arden than did the rest of the industry during 1950 and 1956. Again, it should be emphasized that Mr. Adelman s estimates err in the direction of understating this gap.

Moreover, Mr. Adelman s study showed that between 1935 ancl1950 the largest firms were growing signficantly ll10re rapidly than his 1 Tbe above comparisons use 1950 RS the terminal year because this was when the com. 'PJaint issued against Foremost. If HJ57 were used, tbe piciure would not be significantly different, however. Between 1950 and 1957 the combined sales of Foremost and the other four concerns in III'. .Adelman s study grew by 67.4% and the rest of the industry by 40;3%. CompltrisoDs between 1950 and 1958 are Dot possibJebecause Mr. Adelman study did Dot include cairy product sales of Arden Farms in 1958. FOREMOST DAIRIES , INC. 1055 944 Opinion universe of da.iry sales; the combined sales of the eight largest firms (including sales of nondairy products) grew by 240%, whereas Mr. Adelman estimated that total dairy product sales grew by 219%. Since nondairy sales were less important during this period, these data suggest that prior to 1950 the largest firms grew more rapidly than did total industry sales of dairy products. Counsel in support of the complaint also introduced evidence purporting to show the changing market share of the large dairy concerns during 1950-55. These data make comparisons in physical rather than dollar volumes, thereby avoiding the arbitrary estimates :Mr. Adelman was forced to make in determining total sales in doHar volumes. However, the respondent has cited a number of alleged shortcomings which warrant our attention.

First, the universe figures for total fluid milk and ice cream consumption are for the 48 mainland states, whereas Foremost and Beatrice had sales in Hawaii. Similarly, the universe figures did not include sales of recombined milk, whereas Foremost sales include recombined milk sold abroad. These shortcomings do not affect the validity of any c01nparison except those for Foremost and Beatrice and apparently, are not very significant with respect to them. In Table 1 (a) and Table 1 (b) below, this error is corrected by deducting Foremost' s ice cream, fluid milk, and recombined milk sales outside the mainland from its total sales. The record docs not contain those statistics which are required to determine with precision the degree of error arising in the case of Beatrice. :However, since the Hawaiian market is not very large, and Foremost reportedly did about 30% of the tot.al business there, it defies logic to infer that Beatrice s Hawaiian sales wero suffciently large to distort signifiea,ntly the estimates of Beatrice s share of mainhtnd sales.

The second shortcoming of counsel supporting the complaint' s data is that the universe figure of fluid milk does not include sales of raw milk, whereas Borden s sales include raw milk. The record does not permit a measure of t.he exact magnitude of this error. I-Iowever there is no basis for inferring whether this error tends to exhibit an upward or downward bias in Borden s market share during 1950-55. Thirdly, the figures for Arden are estimated. This hardly seems a valid reason to disquaJjfy them. The Arden offcial supplying this information explained that it was necessary t.o make estimates. l\1moreover, he stated that any margin of error resulting therefrom was small.

_ ___;:_ __:::::::: __ :: :: , ! . j: 1056 FEDERAL TRADE COMMISSION DECISIOKS Opinion 60 r.

Fourthly, respondent argued that the 1954 figure for Foremost is understated because it only includes the postacquisition sales of c0111panies acquired in that year, and that, therefore, the increase shown for the following years is to a considerable measure illusory. This criticism seems valid and, therefore, rules out precise comparison between Foremost' s 1954 and 1955 market shares. Finally, respondent contends that the ice cream universe figures used by counsel supporting the complaint arc defective because they are based on preliminary figures which were subsequently revised. Only 1950 universe figures were affected significantly by this error. Because of this, and because 1950 data were not a vai1able for Arden the comparisons reproduced below are restricted to 1951-55. Tables l(a) and l(b) reproduce the relevant portions of counsel supporting the compl lint' s exhibits sho-wing the market share of ice "cream and fluid milk supplied by five dairy firms during 1951and Foremost's share of these products in 1955; the Foremost figure having been adjust.ed as indicated below.

TABLE 1 (a) Percent of U.S. production of .fluid m.ilk 1951 : 1955 Cational ----------- 6. 81 I 6. DO IBorden_ 6. 05 6. 33 6. 35 6.Beatrlcc------------ 1. 68) 1. 69 2. 03 2. . 57Carnation_-- 1. 25 I 1. 39 1. 44 I 1. 45 1. 53Arden Farms--_ 76 I . I 2. 78 . - 4 : - 0 . 54 i: 18. Fo'em 22.

:: I:: 1 :: I:: 1 :;;i T.-\.DLE 1 (b) Percent of U.S. production of frozen desserts 19E,1 195 lU53 1\J1 I 1-- 19551-- 14. 13. 13. 3D 12. 50 I . 65 10. 8. D7 I If 08 Beatrice- -- - - - -- - n - - - - - - -- - _ 3. 73 3. 68 J. 17 37 i Carnation - - - -- - -- -- 1. 81 2. 13 2. IS 2. 17 2. . 2. 46Arden Farms_ - 1 Subtot L- - 1 31. 76 I 31. 07 1--: 30. 13 I 1. on Fo,em I 31. 7'1 5. 56 --C ::t,, 1-- 36. -- i FOREMOST DAIRIES 1057 944 Opinion These comparisons reveal that each of these five firms increased its slmre 01 fluid milk sales between 1951 and 1955, and that their combined sales amounted to "about 18.67% 01 total sales in 1955. Foremost accounted lor an additional 3.41 % of these sales in 1955. Although no data are available on Foremost's share of 1951 sales 'ivere only oJH -seventh as large then as inconsidering its total sales 1955, its share must have been well under 1 % in 1951. Thus, in 1955 six large firms accounted lor about 22% 01 total fluid milk sales which represented an increase of between four and five percentage points or over 25% in just four years.

In frozen desserts, five large concerns about held their own during 1951- , although they increased their share slightly between 1954 and 1955 (Table 1 (b)). In 1955, they accounted lor 31.06% 01 total Irozen dessert sales. In that year, Foremost did 5.56% 01 the Ira zen dessert business. Considering that Foremost must have had a very small percentage of total frozen dessert sales in 1951, the combined sales of these concerns increased significantly during this period, due largely to respondent' s merger-induced growth. In interpreting the significance of the above concentration ratios it is important to keep in mind the large size of the dairy industry. It is an industry with sales of nine bilion dollars. A market share change of five percentage points must involve a shift in sales in the order 01 nearly one-half billion dollars. Moreover, it should be noted that this truly immense sales shift was wrought in just four years.

It is respondent's posit.ion that national market share data are wi thout meaning since they do not depict changes that arc occurring in the relevant local Inarkets. 'Ve do not agree that such datn are meaningless as, in our view, the national market sllare data do provide one index of the industrial tra,nsformation occurring in this industry. However, we think that this record demonstrates that concentration in smucker geographic areas is much greater than that existing at the national level. For example, counsel supporting the complaint introduced evidence showing that in the State of California, five large dairies (all of the above except ational) accounted for about 40% of total fluid milk sales and 58% of frozen dessert sales in 1955; Foremost accounting for 16% and 18%, respectively. ,Ve have eonidered the objections raised by respondent to these estimates and conclude that they do not overstate actual concentration levels to any significant degree.

The next aspect of the industrial setting which deserves our atten. tion is the degree of concent.ration existing in tlle various local ________ _ Opinion 60 F.

markets throughout the country and which as subsequently discussed herein are determined to be the relevant geographic markets within which competition actually occurs.

In Table 2 are reproduced the approximate market shares in 1950 of the largest and four largest dairy concerns in 13 cities as shown by the record. These data indicate that we are dealing with an industry in "Which sales concentration was extrenlely high in 1950 in the relevant local markets. Without exception, the largest dairy firm sold 20% or more of the flnid milk and ice cream sold in these cities; and the four largest some over 60% of the fluid milk and 65% or more of the ice cream. TABLE Market share of the largest and four largest dairy firms in 13 cities, 1950 Fluidmi!k Ice cream )'Jarket ;," I 4 ,,,,,,t Y,cem,,' ' I Gainsesvile, Fla______-- 25. 0 70. 0I F'cenwoti 25. 0 30. 0 90. 0 30. 0Miami, Fla_--____- 20. 0 68. 0 8. 0 24. 0 86. 0 17. 0Jacksonvile, Fla 38. 5. 60. 5 38. 5 39. 0 93. 0 39. 0Daytona Beach, Fla____ 25. 0 70. 0 23. 0 30. 0 *65. 0 30. 0Tampa, Fla_ 35. 0 85. 0 5. 0 25. 0 80. 0 10San Antonio, Tex 20. 0 70. 0 15. 0 20. 0 6. 0 20Fort \Vorth, Tcx 20. 0 70. 0 18. 0 20. 0 75. 15. 0Houston, Tel 50. , 95. 0 10. 0 25. 0 70. 0 15.Spartan burg, s. C 20. 0 60. 0 29. 0 25. 0 70. 0 20. 0San l\Iateo, calif___--_ 30. 3 77. 7 30. 3 ------- San Francisco, c.alia----__ 40. 1 *74. 8 40. 1 -Santa Clara, CahL_ 28. 0 . 74. 28. 0 1------- --- Alameda- Contra Costa, Calif- Average: (un weighted) - - : f 26. 77. 6- -- 1-- *Three companies only.

One final aspect of the industrial setting which deserves our attention is the over-all merger movement occurring in this industry. The courts lmve repeatedly pointed out that Congress, in creating the Federal Trade Commission, expected it to develop special expertise of the organization of industries which it was directed to regulate. The Commission cannot, therefore, close its eyes to what is common knowledge in this industry. Large concerns have used mergers extensively in their growth, prior to and since 1950 when Section 7 was amended. As already indicated, the amendment resulted, in part, because of Congress' concern with the past history of mergers in the food industry. In three separate studies the Commission has taken special.l notice FOREMOST DAIRIES, INC. 1059 944 Opinion of the prominent nature of dairy mergers.' Nor can the Commission ignore the fact that since issuance of the complaint herein, complaints have been issued challenging numerous acquisitions by three other large dairy concerns. Thus, this case must be viewed within the context of a merger pattern encompassing a number of large firms in this industry. This I.ecorel discloses the presence of several of these nation-wide dairies in most of the local markets considered herein and reference will be made to their acquisitions in our subsequent discussion of certain of these markets.

As a result of their llrnnerous 111crgers these large dairy firms have become vast concerns operating across many markets and, as we have noted, meet one another as competitors in many of the same markets. As already indicated, most of the renlaining firms in this industry are relatively small independent dairies operating in one or very few markets. The relatively large size and geographically diversified character of these firms is of considerable potential significance for the character of competition we may expect among thes firms. Their geographic di ver.sification adds a significant dimension to their behavioral opportunities.

TIlls brings us to Mr. Adelman s general observations concerning the "hedging" aspects of diversification as providing ll1creIy a forll of insurance. Obviously the profits of a diversifed firm are simply the weighted average of its separate parts, as lY1r. Adehnan c,mtends. But this tells only how diversification affects a firm s profits in the short run; it ignores completely the "leverage" advantage possessed by large, diversified and geographically dispersed firms such as respondent. A small dairy operating in a single local market has its competitive behavior constrained by conditions existing in this market; a large diversified firm does not operate under similar market constraints. It m"y, if it chooses, outcompete the little man by subsidizing its operations in one market out of its operations elsewhere. Of course, this temporarily m"y lower slightly the average profits on its over-all operations. But for the little man, losses in one market mean no profits at all-no profits with which to expand, no profits with which to develop new production teclmiques, no profits with which to fi Report 01 the Federal TradfJ Commission on th6 Sale and Distribution of Milk 75th Congress, 1st Sess., IIouse Document No. 95. ,This report elaborated the important contribution of mergers to the growth of Borden find National Dairy Products. Report oj the Federal Trade Commission on the Merger Movement 1948. G'hJs report described in detail the mergers made by Borden and National Dairy Products during the 1940merger movement. Federal Trade Oommi6sion Report on Oorporate Mergers and A.cqu!- Siti0118 :May 1955. h!s report pointed out that Foremost made more acquisitions than any other firm during 1948- , and that the Borden Co. was the 10th most active acquiring company.

719-603--64-- Opinion 60 F.

make product improvements; or, simply put, the little man is deprived of the profits which, in a free enterprise economy, makes it possible for him to survive in the long run.

Mr. Adelman s "hedging" analysis does not touch on this advantage of a diversified firm. I--however, respondent' s president, Their. Turnbow emphasized it Ina.ny times during his testimony. Although a diversified firm may exercise restraint in the use of such power, it remains a potent weapon in its c01npetitive arsenal. Its mere possession may be suffcient to deter the smail man from acting with competitive vigor and independence.

'\Ve now turn to the question of whether respondent's various acquisitions violated amended Section 7. This determination shall be made within the industrial setting and legal considerations discussed above. vVe shall consider first the question of the relevant lines of commerce which ate here involved.

Briefly, the hearing examiner f01md that the over-all line of commerce is dairy products, defined in the complaint as including one or any null1ber of the following products: milk, cream ice cream, cheese, butter, eggs, canned fresh milk, and evaporated milk". Additionally, he held the follm,ing to be relevant lines of commerce in this proceeding: the processing and sale of fluid milk (whole milk, skim milk, buttermilk, flavored milk, mixtures of milk and cream, light cream and heavy cream) at wholesale and retail; the manufacture and saJc of frozen dairy products, including ice cream, at wholesale; the sening of ice crCall1 at retail; and the manufacture and sale of butter, cheese, eggs, canned fresh milk, and evap orated milk, respectively.

either respondent nor counsel in support of the complaint seriously disputes the hearing examiner s ruling. In our view, the hearing examiner correctly applied the tests established by the Supreme Court in the dupont case 9 and we adopt as our own his findings as to the relevant lines of commerce.

'tve next consider respondent's contention that the hearing examiner erred in his determination as to the proper geographic area of the relevant market. Based principally on the court's holding in the Bethlehem Steel case pla the examiner found that the relevant sections of the country ate "those areas of compet.tion in nnmerons local markets throughout the country "where there is an area. of effective competition in the prodllctsinclllc1ed in the lines of commerce hereinbefore indicated. I-Ie specifically named each of these areas in conne.ction II United States v, E. I. d!lPont d.eNemollrs Co. 353 U. S. 586 (1957), FORE),10ST DAIRIES , INC. 1061 944 Opinion with each acquisition which he found to be illegal. He further concluded that as to ice cream, larger divisions of the United States, or the total United States' market, might be considered a section of the cOlmtry.

In its brief in answer to the proposed findings of counsel in support of the complaint, respondent is in agreement that the economic and business realities of the dairy products industry establish as effective areas of competition the numerous local markets throughout the country. In this appeal, however, respondent contends that in holding certain areas to be "sections of the cOlIDtry" the hearing examiner was too restrictive. Particular objection is made to such a finding by the heating examiner with respect to the fluid milk market in the metropolitan areas of Abilene, Texas (population 000) and Sioux Falls South Dakota (population 65 000). Basically, respondent argues that Congress intended to elilninate such limited areas from consideration under Section 7 when it dropped the word "community" in amending that section in 1950.

Section 7, as amended, now requires that competition be adversely affected in a "section of the country . As interpreted by the courts this determination must be Blade 011 the basis of econo:mc reality. Thus, if the nature of the product or the characteristics of an industry are such that an area. which Ina,y be designated a community is economic significance, there is no bar to recognizing that area as a section of the country within the intent of Section 7. The considerations which lead to the conclusion that the numerous local markets constitute the relevant sections of the country, as found by the hearing examiner, are applicable to all such markets, large or small. Included among these considerations, as respondent itself has noted, are the Jimited area which can be covered by route trucks delivering to customers, differing local health and ot.her regulations and different price considerations unique to different urban centers. Abilene and Sionx Facts are subject to these same considerations. lve find no error in the hearing exmniner s ruling on this point. This lends us to respondent's contention that the headng examiner erred in failing to take notice of certain revolutionary changes in the dairy industry, particularly the fluid milk industry, which, according to respondent, have taken place since lV orld lear II. In substance, these changes include improved techniques of refrigeration and control of disease producing organisms thus reducing perishabi1ity of the product; improved roads; substitution of paper containers for glass bottles thus effecting substantial savings in weight; and significant changes in local health regulations. Coinciding with 1062 FEDERAL TRADE CO=nSSION DECISIONS Opinion 60 F.

these changes, according to respondent, are other changes relating to cost of production and distribution which have made it advantageous to process larger volumes of milk. Respondent' s argument is that the result of these revolutionary changes has been a large and ever. growing interchange of milk between different markets. A relevant economic question here is whether recent teclmological developments have so transformed the economics of this industry that potential entrants face no signifcant economic barriers in entering the various relevant markets in this ease. Respondent argues, in effect, that these barriers are so low that the effects of its mergers inevitably wil be diluted by the entrance of new firms. From our consideration of the record, we agree that tec1mological as well as other changes have taken place which are conducive to large volume production in the fluid milk industry. Wefind no record support, however, for the conclusion that these changes have been or can be of substantial benefit to all of the many small local companies in that industry. Moreover, we are not convinced from the evidence before us that the so-called "inter-market" distribution of milk will be of such proportions as to significantly alter the competitive pattern in the local markets.

Illustrative of the evidence relied upon by respondent in support of its arguent is a table (Respondent Exhibit 160B) purporting to show the distances which 476 milk bottling plants shipped their milk. Of this group, 179 plants did not sell outside their metropolitan areas and about 60% of the total sold their entire output within 24 miles of their metropolitan areas. Only five plants shipped over 400 miles. The record is silent as to what portion of the 51.9% of the output of these plants which is sold outside their metropolitan areas is actually shipped 400 miles.

This table covers plants located in nine states in the Pacific Northwest and in Hawaii and Alaska. It is admitted by the person responsible for this table that "inter-market" activity is considerably greater in these areas than in the more populated areas of the United States. Regardless, therefore, of the fact that the table is not representative, it does establish that practically all dairy plants in those areas of greatest interchange between markets rely primarily on customers within the metropolitan area in which they are located and the majority rely almost exclusively on customers within 24 miles of their plants. Moreover, the average volume of the 179 plants sellng within their metropolitan areas was 2 500 000 pounds yearly, whereas that of the five plants which distributed over 400 miles was 37 300 000 pounds. It is obvious that whatever advantages there may be to FOREMOST DAIRIES , INC. 1063 944 Opinion inter-market" distrbution, it belongs to those large companies, be they multiplant or independent, to the consequent disadvantage of the small opera tor.

Another factor which militates against a finding that there are no significant barriers to entering new markets by "inter-market" distribution is the fact that respondent itself has used mergers extensively to expand into geographic areas near its existing plants. For example respondent owned a plant in Los Angeles, California, from which it was distributing milk and ice cream in San Diego at a loss. In 1954 it 'acquired the stock of Hage s Ltd., in San Diego, and began processing and selling milk from that plant. In commenting on this acquisition of a plant within 150 miles of its distribution point, respondent' president stated that the savings in hauling alone made it a profitable operation. .foreover respondent made numerous mergers to enter and supply many Florida markets rather than enter them through internal expansion simply by supplying them from its J acksonvile plant. In Texas, Foremost also used mergers rather than inter-market distribution to enter many new markets.

To the extent that "inter-market" distribution does exist, additional eompetitors may appear initially in local markets. However, within an area that can be reached by several companies having the facilities for outside distribution, the result will be that these same companies wil begin sellng in each of these Jocal markets. These companies must find new business in the competitive market. Although this business may come from customers of both the large and small firms already in the market, we think it obvious that the firms least likely to survive a loss of market shares are the small, nondiversified c1a.iries. It is significant in this respect to project the probable eHeet on market structure of extensive inter-market distribution of milk. The 476 milk plants covered in the respondent's survey discussed above had total fluid milk product sales of about 3.4 million pounds. Had all these sales been made by plants as large as the five large plants selling milk as far as 400 to 499 miles from their plants, only 91 plants would have been required. This suggests that more extensive inter-market distribution by In-rge concerns .would lead to increased concentration of sales. Since Foremost and other large dairies are multiplant firms, the above figllre may greatly lUlderstate ultimate firm concentration. The tendency to econOlnic concentration inherent in inter-market distribution does not support a fulding of increased competition 'as contended by respondent.

Turning next to the particular acquisitions which are the subject of this proceeding, the hearing examiner classified them into three cate- 1064 FEDERAL TRADE Cmf:'ISSIOK DECISIOKS Opinion 60 F.

gories: (1) horizontal, dermed as the acquisition of a corporation which was in competition with respondent in the sale of one or more dairy products; (2) conglomerate, defined as the acquisition of a corporation that was engaged in business in which respondent was not engaged; and (3) market extension, defined as t.he acquisition a corporation engaged in the dairy business but in a geographical locat.ion \vhere respondent was not so engaged prior to the acquisition. ,With respect to this latter category, the hearing examiner was of the view that such acquisitions 111USt be treated in the same mallnor as t.he conglomemtes and t.hat the same test.s must. be applied t.o determine whether they violate Section The only corporations which the hearing examiner ordered divested were certain ones which he found competed \dth respondent to some extent in the sale of dairy products prior to their acquisition and thus fell into the horizontal classification. It is respondent's contention that the hearing examiner erred in ruling that the effect of onch of those acquisitions may be sl1bstantiaJly to lessen competition or t.end t.o create a monopoly.

The essential facts of record as found by the hearing examiner with respect t.o five of the corporate.e acquisit.ions which he held t.o be ilegal arc as follows:

Crescent Creamery Co., Sioux Falls, South Dakota, together with t.wo wholly mmed subsidiaries, wit.h assets of about. $"197 000, was acquired by respondent in August 1953. Respondent was previously in the Sioux FaJls area through its acquisition of Dairyland Creamery Company in October 1052. Bot.h of t.these acquired companies were engaged in the processing and sale of fluid milk and in the manufacture and sale of ice cream. Dairyland Creamery was a sma, operation with milk sales in 1951 of about $225 000 and ice cream sales of about $340 000. Its plant is described by a former representative of Foremost as being "much, much too small even for our own operations" and, after the Crescent acquisition, respondent combined both operations in the larger Crescent plant. As a result of the Crescent acquisition, rcsponc1ent:s milk sales in the Sioux Falls area totaled over one million gallons in 105:3, the year of acquisition. The Sioux Facts Iit.cheIJ Federal Milk Market. Order discloses t.hat these sales constit.uted '10.2% of that market in t.hat. year. As Foremost was not selling in 1itehel1 at this time, it is obvious that its share of the Sioux Fans area alone '''as even greater than 40.2%. It is clear from t.he limited nature of t.he Dairyland operat.ion and it.s small volume of milk sales in 1051 that. t.he great. bulk of this market share was obtained as a result of the Crescent acquisition. , FOREMOST DAIRIES , INC. 1065 944 Opinion It appears that the four principal competitors of respondent in Sioux Falls at the time of the Crescent acquisition were single-plant independents, lacking the advantages of geographic diversification. Moreover it appears that because of the large, established chain store distribution of milk by respondent and two independents, a later attempt by a dairy concern to enter this nmrket nlet with failure. Also in 1953, respondent, in the same transaction, acquired :Lfoanalua Dairy, Ltd. and Rico Ice Cream Company, Ltd., from Hawaii Dairy Industries, Ltd. Doth companies were engaged in business ini-Ionolulu, Hawaii, the former processing and selling fluid 111ilk and the latter manufacturing and selling ice cream. In 1952 respondent had entered the Honolnlu market in the fluid milk business through its acquisition of Campos Dairy Products, Ltd., which in 1051 hacl 7.2:1% of the fluid milk sales on the Island of Oahu which Honolulu is the principal city. The percentage of this market held by lVIoanalua in lU53 is not given in the record. 1-iowever, it appears that its average daily production of fluid milk was slightly higher than that of Campos and even assuming H, somewhat higher total consumption for the Island, lUoanalua s share would be about 7%. As it appears that its sales were primarily in the Honolulu area rather than t.throughout the entire Island, it is obvious that its share of the IIonolulu market was even larger. In any event, respondent' treasurer testified that the combination of Campos and lIoanalua in 1953 gave Foremost 30% of the fluid milk business on the Isla.nd of Oahu. Thus, it is clear that respondent increased its production prior to the acquisition of ioanalua and that this merger added significantly to its market share and eliminated a substantial competitor. :Moreover, the importance of this acquisition is emphasized by the fnet that ;it that time. respondent's competition in the sale of fluid 111ilk on Oahu consisted of Beatriec Foods and only four or five small dairies. As R.ico had only two ice cream competitors on the Island the market was highly concentrated in the over-all hue of commerce of ,laity products.

The fact that respondent. subsequently combined its fluid milk and ice creilm operations in a, single plant indicates the close economic kinship between ice cream and fluid milk manufacturing and distribution. This kinship was well expressed by respondent's president ,,,hen, in testifying with respect to the acquisition of a milk company in California in all area in which respondent had not previously sold milk but did have a small ice cream business, he stated: Our competitor bad both milk and ice cream and in order to protect our busi ness, strictly competWve of the keenest type, we acquired the milk business to protect our ice cream business.

, .

1066 FEDERAL TRADE COMMISSION DECISIOC'S Opinion 60 F.

Accordingly, we find no error in the hearing examiner s ruling that respondent' s acquisition of Rico Ice Cream Company was complementary to the Moanalua fluid milk business and cannot be considered apart from it.

In his findings as to the market conditions involved in the Moanalua and Rico acquisitions, the hearing examiner concluded that these acquisitions had a tendency to lessen competition and to create a monopoly in fluid milk and ice cream in the Honolulu market and throughout the Island of Oahu. However, in a later discussion as to the probable adverse effects of these mergers, he limited the relevant market to the Honolulu metropolitan area. The record supports a fmding that the concentration of population on Oahu ,vas in the Honolulu area. However, considering the market factors discussed above, it is our view that the relevant market for consideration of the effects of the Moanalua and Rico acquisitions is the Island of Oahu including the I-Ionolulu metropolitan area. In 1952, in one transaction, respondent acquired two corporations both of which were engaged in the processing and sale or fluid milk and in the manufacture and sale of ice cream. The larger or these companies, Southern Thlaid, Inc., of Bristol, Virginia, had total suJes of about $4 417 000.00 and total assets of about $1 246 000.00 the year before acquisition. The sales of the second company, The .Welch Milk Company, .Welch, ,Vest Virginia, were about $1 693 000.00 and it had total assets of about $535 000.00. These companies had the Brune offcers and stockholders and conducted their business as a common operation. Prior to 1952, respondent was in competition \,ith this combined business operation in the sale of both Huid milk and ice cream in two areas J ohnson City and ICingsport., Tennessee. The evidence ,with respect to these acquisitions discloses that in 1951, Southern Maid, Inc., had fluid milk sales of about (;1 700 000. and ice crealn sales of about $8G5 300.00 in the areas of lCilJgsport t1ncl Johnson City, Tennessee, and Bristol and Appalachia, Virgjnia. Respondent' s sales of Huid milk at that time in the first two of these areas were about $863 000. , and its ice cream sales were about $450 000. 00. The combination of Southern Iaid and Foremost gave Foremost, in 1956, a fluid milk market share in excess of 26% in the four-market area previously served by SoutheTll l\Iaicl. It is to be noted that specific market shares of Sout.hern Maid and respondent at t.he time of t.he acquisition are not revealed by this record. However, respondent, in its appeal brief, by comparing its dollar sales volume of $863 000.00 with the total gallonage which this figure represents, 989 791 gallons, conservatively estimates a FOREMOST DAIRIES , ICC. 1067 944 Opinion price of $1.00 per gallon for milk in this area in 1951. Using respondent' estimate, it will be seen that Southern Maid' s total sales of about $1 700 000 represented a like number of gallons and that this amount combined with respondent' s sales of 989 791 gallons makes a total of over 2 600 000 gallons sold by the two companies in 1951. The 26% market share held by respondent in 1956 represented sales of 2 007 018 gallons. Even assuming the total sale of fluid milk in the four areas remained the same from 1951 to 1956, although respondent probably correctly assumes that it lms grown larger, it is clear that the two companies held somewhat more than 26% of the market in 1951. Since Southern Maid's sales were slightly more than double those of respondent at that time, it can be concluded that Southern hid held about 18% of the four-market area and that respondent with about 9% at least tripled its share by this acquisition. The evidence also discloses that in the area composed of .Welch and Bluefield, ';V est Virginia, and Richlanc1s, Virginia, which had been supplied by Southern Maid or The ,V clch Milk Company prior to acquisition, respondent had over 32% of the fluid milk market in 1957. As previously stated, respondent did not sell in these areas prior to the acquisitions. The record is silent as to the specific share of this market obtained by respondent as a result of the acquisitions. The hearing examiner limited the relevant market area to the section of the country comprising the tri-city market area of IGngsport J ol11son City and Bristol. It is our view that to determine the full effects of the acquisition of this combined operation, the relevant market 1,rea should also include the Appalachia area. As a result of each of the aforementioned acquisitions, respondent eliminated a substantial competitor and achieved a very sizeable percentage of total sales in the relevant markets, therby contributing substantially to its position in these markets. These facts make it clear that competition would have benefited had these concerns remained independent. I\loreover, it is highly important that the consequence of these acquisitions be viewed in the light of the industrial setting in which they took place.

As set forth above, most local fluid milk markets are extremely concentrated, the totd number of fluid milk distributors is declining, and the techl1010gical and market barrie.rs confronting prospective entrants are rising. The above horizontal acquisitions by respondent have further contributed to such concentration. Even where local market concentration may have declined for some reason after the acquisition, the over-all industrial setting here is such that we believe that respondent's mergers seriously retarded this decline, and that 1068 FEDERAL TRADE CO:MISSION DECISIOKS Opinion 60 mnsequently competition would have benefited had these acquisitions not occurred. As we have noted, this particular industry is characterized by many small firms which lack the power resulting from diversification as well as other advantages accruing to large multiplant concerns such as respondent. We think the following statement by the court in the Grown Zellerbach case, 81tpra is especially relevant to these acquisitions:

To borrow a phrase from Universal Camera, Congress expressed a mood that acquisition of a rival firm by a larger one, resulting in a substantial increase in the concentration of power in the absorbing concern, is to be prohibited for the reason that such increased opportunity for domination wil probably lessen competition or tend to create a monopoly. It is its tendency to concentration ,of power that condemns the merger, This alone justified the Commission s finding that the reasonably probable result of the acquisition would be substantially to lessen competition and to create a monopoly.

It is our opinion that the aforementioned acquisitions are the type contemplated by the Congressional mood referred to by the court. 1Ve conclude, therefore, that the hearing examiner s ruling that re- 'spondent' s acquisitions of Crescent Creamery Co. Ioanalua Dairy, Ltd. ; Rico Ice Cream Company, Ltd. ; Southern Maid, Inc. ; and The Welch Milk Company violated Section 7 is fully supported on the rec-ord.

Three other companies which the hearing examiner ordered divested are locat.ed in the State of Texas. They are Banner Dairies, Inc. Abilene, Texas; Tennessee Dairies, Inc., Dallas, Texas; and Phenix Dairy, l-Iouston, Texas.

IVe first consider respondent' s argument that, contrary to the heating examiner s ruling, these companies were not engu,ged in interstate commerce for the purpose of applying Section 7. That section as pointed out by respondent, applies only to an acquisition in which both the acquired and tlle acquiring companies arc engaged in commerce.

It is clear from the record that each of the three companies was regularly engaged in the purchase of certain dairy products, namely, milk, cheese and hutter, from suppliers located outside of the State of Texas and that these products ".ere shipped directly from the suppliers to the plants of Banner, Phenix and Tennessee Dairies. The products underwent certain changes in the plants of these cOlnpanies such as processing or repackaging, and then were sold only within the State of Texas by each company.

The hearing examiner found that the entire transaction from the purchase out.-of-state to the final sale within the state, constituted . . .

FOREMOST DAIRIES, INC. 1069 1)44 Opinion a transaction in interstate commerce, notwithstanding the changes which took place in the form of the product. In substance, respondent contends that the commerce requirement 'Of Section 7 can 'Only be met by a showing that these firms were engaged in the sale of dairy products outside 'Of Texas.

,Ve do not find it necssary t'O rely an the flow 'Of the products to the ultimate consumer in Texlts, as the hearing examiner apparently did, to establish the requisite element of commerce as to these three concerns. Section 7 requires that the parties be "engaged in commerce" and "commerce" is define.d in the Act in part as meaning trade or commerce among the several states. It is well settled that the term comprehends intercourse for the purpose 'Of trade in any form, including both the purchase and sale of commodities." The Supreme Caurt has cited with approval the language of the court in Butler Bros. Shoe 00. v. United States Rubber Co. 156 Fed. 1 (8th Cir. 1907), that " all interstate commerce is not sale of goods. Importation into one state irom another is the indispensable element, the test, 'Of interstate Olmnerce; . . " 11 'Ve hold that Banner, Phenix and Tennessee Dairies were engaged in commerce for the purposes 'Of Section 7 through their purchases 'Of dairy products from 'Outside the State of Texas.

Looking, therefore, at the facts of each of these acquisitions, we find first that Banner Dairies, when it was acquired by respondent in 1953 had milk processing plants located at Abilene, Brownwaod, Midland ancl San Angelo, Texas; an ice creanl manufacturing plant at Abilene; combination milk and ice cream distribution branches at Odessa, Big Spring and Easth,nd, Texas; and milk distribution points at Haskell Hamlin and Coleman, Texas. Its fluid milk sales the year before acquisition were about $2 790 400 and its ice cream sales were about $642 700.

Respondent was in competition with Banner Dairies in the sale of ice cream in the Abilenc mlLrket prior to the acquisition. In 1952 Balmer s ice cream sales in this market were about $373 000 compared to Foremost's sales of about $380 000. The record does not contain statistics as to the total ice cream sales in the Abilene area in that year. However, the record does show that in the nearby Fort .W orth a.rea with a population of about 280 000 in 1950, respondents ice cream sales in that year of about $695 000 constituted 15% of the market. Likewise, its ice cream sales of $501 00 in tile Dallas area, with a population of 494 000 in 1950, constiuted 10% of the sales in that area. OD(/nke.Wa,U.'er Mining CO. Y. Bondnrant 257l!.S. 282 (1\)21). llIlItenlaHonal Textbook Co. Y. Firm, 217 1:. 8. 91 (HJ10). 1070 FEDERAL TRADE COM:ISSION DECISIONS Opinion 60 F.

Thus, even considering the fact that the average per capita consumption of ice cream iucreased from 17.2 pOlmds in1D50 to 17.D pounds in 1952, it may be inferred that the combination of sales of ice cream by Balmer and Foremost in 1952 totaling about $750 000, constituted well over half of the market in this relevant product line in Abilene with its population of about 60 000.

In addition to donbling its ice cream sales in Abilene by acquiring Banner Dairies, respondent supplemented this product line with & fluid milk line with sales of over one million dollars in the A bilene market in the preceding year. Moreover it obtained substantial chain store distribution of fluid milk in Abilene, which is of vital importance to the existence of & wholesale milk business. Also, respondent was able to offer not only a single dairy product, ice cream, to its Abilene customers, but with its product diversification, could supply a full line of these related products to the competitive disadvantage of firms with restricted lines. Respondent's profits in the Abilene area increased from $163 000 in 1954 to $270 000 in 1955. It appears that at the time of the acquisition as well as at the time of the hearing, only one of respondent's competitors in Abilene opcratcd a flujd milk processing plant in that area. All other competitors in this market ship their milk from distances ranging from 05 to 295 miles. It is significant to note that the only other local dairy complmy having a processing plant in Abilene was acquired by The Borden Company, Olle of the nation-wide, multiplant dairy companies, the same year that Foremost acquired Banner Dairies. The acquisition of Tennessee Dairies, Inc. , took place in 1952. Prior thereto, that company processed and sold fluid milk in Dallas Longview, lCilgol'e, il1cI(inney, Sherman, 1Vaco, San Antonio, Terrell and Sulphur Springs, Texas. Also, it sold milk at its D"lJas plant to customers ,vho distributed in Odessa, Corpus Christi and other towns in the Rio Grande Valley.

In the Dallas area, Te11Jessee had fluid milk sales in the amount of about $4 332 000 in 1D51. Respondent had 10% of the ice cream business in that area prior to the acquisition but did not compete with Tennessee in the sale of any dairy product in the Dallas market. However, we agree with the hearing exanliner that as iD the Banner acquisition, the ice cream business was complementary to the sale of fluid milk a,nc1 this acquisition thus gave respondent a competitive advantage because of its product c1iversifica6on. It is estimated by respondent's South\vest Division manager that Tennessee Dairies ranked fourth or fifth in the Dallas area in the sale of fluid milk at the time of this acquisition. It had subst&ntial FOREMOST DAIRIES , INC. 1071 Opinion well-established chain store distribution which was inherited by Foremost, and for the period of 1956 through 1959 Foremost had over 15% of the fluid milk market in Dallas and the surrounding area. Respondent' s fluid milk sales have steadily increased in this market and, in 1957, it is estimated that it ranked third in fluid milk sales. Although respondent did not sell fluid milk in the Dallas market prior to the Tennessee Dairies acquisition, it did have an established plant in nearby Fort Worth. Its fluid milk sales in that area were substantial, totaling about $2 526 000 in 1950. This constituted 18% of that market. Of particular significance here is the fact that the national, multiplant Beatrice Company acquired a substantial dairy concern in Fort .W orth in 1959 and almost immediately began sellng in the Dallas market. The Borden Company had been in the Dallas area for some time. It appears likely that Foremost, had it not been able to acquire a Dallas dairy, would likewise have begun competing in that area from Fort .W orth, a distance of only about 35 miles, and that Dallas consumers would thus have had the benefit of competition between respondent and Tennessee Dairies. The total volume of milk sold by respondent's Dallas and Fort W orth plants increased from 10 472 600 gallons in 1956 to 10 830 400 gallons in 1959.

Tennessee Dairies and Foremost did compete in the sale of fluid milk in San Antonio prior to this acquisition. In 1950, Borden and one other dairy, an independent, each had 20% of this market. Two other indcpendents and Forcmost each had 15%. Thus, these five companies controlled 85% of the fluid milk market. In addition, Borden and Foremost, together with Swift, had 60% of the ice cream market, equally divided among the three. Tennessee came into the San Antonio Market in 1951 and, in that year, it obtained a share of 1.2% of the market. This share, though small added to respondent's already significant position in the fluid milk market and, as complemented by respondent's substantial ice cream sales, is suffcient in our view, to warrant a conclusion of probable adverse competitive effect in the San Antonio area. As was true of the other Texas markets we have discussed, Foremost was follmyccl into the San Antonio market by another national, multiplant company, Carnation, which had not previously sold fiuidmilk in that area. Carnation acquired one of the tv.' independent companies which, in 1950, had 15% of this market. The third Texas acquisition ordered divested by the hearing examiner was that of Phenix Da.iry. This company, which was acquired by respondent in 1952, processed fluid milk in Houston which it , Opinion 60 F.

distributed in Houston and two other towns within 60 miles of that city, and manufactured ice cream in EI Campo rexas, which it also. distributed in Houston. Its fluid milk sales in the Houston area in 1951 amounted to approximately $5 455 000 and its ice cream sales in that area were about $34 100. Respondent's sales of fluid milk in the. Houston area at that time were $1 492 200 and its ice crea.m sales were $798 900.

Although the bulk of Phenix' sales of fluid milk were at retail home delivery, it also ,vas a substantial competitor in chain store distribution. There is some dispute as to the percentages of the fluid milk market held by Phenix and respondent prior to the acquisition. It appears on the basis of respondent' s estimate that in 1950, Phenix had 15% of this market in the Houston area and that respondent had 10% of the market as well as 15% of the ice cream market. Apparently, as found by the hearing examiner the combined share of the two companies in 1952 was between 17% and 25%. In any event, Phenix was one of the largest independent dairies in the State prior to its acquisition and, as a result thereof, respondent beea, the second largest distributor of fluid milk in the Houston area. In the lIouston market two years before this acquisition, Borden had 50.0% of the fluid milk sales and Carnation had 20.0%. 'Ve agree with the hearing examiner that respondent's acquisitions. of these three Texas companies made it a major factor in chain store distribution in certain areas and that in each of the four markets discussed above respondent obtained a competitive advantage over local concerns. :Moreover, the hearing examiner was correct in finding that these three Texas acquisitions contributed to respondent's geoadvantages whichgraphical diversification with the attending have previously discussed. In addition, however, in determining the probable effect on competition, it is essential to view these three acquisitions within respondent's previous over-all growth pattern in the Texas area. As heretofore pointed out, Congress in amending Section 7 was well aware of the cumulative effect of a series of acquisitions ane! the need for intervention in such a process. About seven years prior to these three Texas acquisitions, respondent acquired Southwest Dairy Products Company with sales of about 000 000. Soutlnl"est had combination milk and ice cream plants in San Antonio, Texas, and Shreveport, Louisiana; a milk plant in Fort 'V orth, Texas; an ice cream plant in 1-1houston, Texas; a m-ilk recei ving station at Cleburne, Texas, and ice cream distribution points at Beaumont and Huntsvile, Texas. Respondent had not operated in any of these areas previously.

FOREMOST DAIRIES , TIC. Ion 944 Opinion The following year, 1946, respondent made its first entry into the Abilene market by acquiring the Abilene and Fort 'W orth ice cream business of the Pangburn Ice Cream Co. The next two years respondent added to its Houston operation by the acquisition of the fluid milk plant of the Metzger Dairy Company in 1947 and, in 1948, by the acquisition of F & M Dairies, Inc.

Thereafter, respondent made the following acquisitions in Texas: in 1949 , the ice cream business of Tasty Ice Cream Company in Sherman and Bonham and in the same year, the milk routes of a producer-distributor in Houston; in 1950, the Colonial lee Cream Company in Beaumont; in 1951, the fluid milk business of Mrs. Tucker Foods in Sherman; and in 1952, Taylor s Home lllade Ice Cream, Company in Fort ' Worth which did about 15% of the ice cream business in that area in 1950.

The preceding resume illust.rates that respondent used mergers extensively in its entry and expansion into the Texas area. Prior to acquiring Phenix Dairy, respondent had already penetrated three of the largest cities in Texas-Fort 'Worth, Houston and San Antonio as \yell as BOGle medium-sized cities such as Beaumont and Abilene and many smaIlel' communities. It also had made two acquisitions in Shreveport, Louisiana, just across Texas' eastern border. In addition to the above acquisitions by Fore1nost, it is important to note that in each of the four relevant geographical markets except Houston where Borden and Carnation already controlled 70% of the fluid milk market in 1950, one of the large, diversified dairy firms replaced a local independent firm a short time after respondent made its acquisitions. Thus, Foremost followed Borden and Carnation into the already concentrated Houston market. Beatrice, Borden and Carnation followed Foremost into the Dallas, Abilene and San Antonio markets, respectively. This is a clear example of the elimination by merger of local dairies and their replacement by companies with the power accompanying diversification, to the consequent disadvantage of the remaining local competitors.

This growth pattern of Foremost and the merger pattern of the other large dairies in the.se markets gives added significance to respondent's acquisition of Phenix, Tennessee, and Banner. Not. only were each of these acquisitions horizontal in certain relevant markets but they involved the elimination of substantial potential competition among the acquired concerns and respondent. Foremost' s pre-mergergrowth history in Texas demonstrates it was capable of and interested in expa,nding into more and more Texas markets. The last three firms it acquired represented sizeable independent concerns. By ac- 1074 FEDERAL TRADE COMMISSION DECISIOKS Opinion 60 F.

quiring them, respondent eliminated firms which otherwise would have been among its leading rivals. The acquisition of Tennessee Dairies is illustrative on this point. Tennessee had total sales of $10 706 800 in 1951, which was about one-fifth as great as respondent' total sales in that year. San Antonio was the only relevant market in which both Tennessee and respondent operated in 1952. Respondent did 15% of the fluid milk business and Tennessee did 1.2%. However the fact that Tennessee had entered this market only about one year earlier explains its relatively low market share. By acquiring Tennessee, respondent eliminated what very probably would have been one of its strongest :future rivals in this area, As further elaborated below in our discussion of Philadelphia Dairy Products, Inc., Foremost had the ability and incentive to grow through internal growth in new areas but preferred to grow by mergers. Here we have a situation frequently found in antitrust matters; what seems sound and prudent for an individual company is contrary to the public policy of maintaining competition.

"lve think the following langmlge of the court in the Brown Shoe case supra is particularly applicable to respondent's growth in the Texas markets:

'Ve can only eat an apple a bite at a time. The end result o. consumption is the same whether it be done by qnarters, bal,ea, three-quarters, or the whole, and it is finally determined by our own appetites. A nibbler can soon consume the whole with a bite here and a bite there. So, whether we nibble delicately, or gobble ravenously, the end result is, or can be, the same. 1V c concnr with the hearing examiner s decision that respondent' acquisitions of Banner Dairies Inc., Tennessee Dairies, Inc., and Phenix Dairy may have the effect of substantially lessening competition in the markets in which respondent and the acquired dairies operated prior to their acquisition.

The Hnal acquisition ordered divested by the hearing examiner was that of Golden State Company, Ltd., San Francisco, California. At the ti1ne the agreement of merger was ratified in February 1954 Golden State processed and distributed fluid milk at wholesale and home delivery retail It also distributed a full line of dairy and re hted products, operating substantially throughout the entire State of California. It had the largest over-all dairy business in that State in terms of dollar sales. Its growth had been aided considerably by Jnergers, Golden State Imvjng acquired thirteen milk and ice cream compa,iiles in the eight-year period prior to its acquisition by Foremost.

FOREMOST DAIRIES, I 1075 944 Opinion Foremost, as the result of its previous acquisitions in California was competing with Golden State at the time of its acquisition in four market areas: Alameda- Contra Costa, San Francisco, San .iLateo and Santa Clara. As found by the hearing examiner, Goldeu State s volume of fluid milk sales in these four areas in 1953 amounted to about 800 000 gallons, which constituted about 30% of its total fluid milk sales in the Stntc. Foremost s sales of fluid milk in the same four areas in 1953 were about 8 000 000 gallons. By acquiring Golden State, respondent increased its share of the fluid milk market in each of these areas as follows: San Francisco-from 22.3% to 37.7%; Santa Clara-from 7.0% to 29% ; Ahuneda-Contra Costa-from 3. to 26%; San Mateo-from 5.7% to 26.8%. Respondent became the largest distributor of fluid milk in the State of California. The hearing examiner s detailed findings as to the market conditions existing in each of the four relevant geographic areas arc fully supportBel oy the record. These findings led the hearing examiner to conclude that the effect of the Golden State acquisition may be substanrially 1"0 lessen competition in rhe s,lle of fluid milk in each of these four areas. lie ,also concludeel that the acqujsitioll resulted in a definite tendency t.o the creation of an oligopoly in the fluid llli1k and frozen dessert, industries in the entire State of California. \VO fully agree -with the hearing examiner s conclusions. The acquisition of Golden State removed from the competitive scene the largest dairy business in California. and one of the largest in the country. Moreover, the potential impact, of this a,acquisition on cOlnpetiticm goes beyond t.he implications of the horizont.al aspects which are clearly shown by the hearing examiner. As with the three Texas acquisition, the Golden State merger' must be viewed within respondent' over all merger and growth pattern in California and the position- of the other large multiplant dairies which respondent, through Inergers followed into the four relevant areas. In this latter connection, the record discloses thb followlllg with respect to the presence of sadl dairies and their fluid milk market. shares in 1953: Ban Francisco Alameda-Contl' a Costa Borden ----- 23. 90/0 Borden __------n_ -- 12. Arden ----------- 49d Caruation ------------ ----- 14. SantaOlara San Mateo Borden --- 20. 60/0 Borden --------------- 21. 50/0 Carnation ------------------ 11. 7% Carnation ------------------ 4. Arden ---- 40/0 Arden -- 20/0 Beatrice -- --- 10.

719-603--64-- Opinion 60 F.

Tho concentration existing in these four areas in 1954 is evidenced by the sales of fluid milk of these large concerns (in terms of percentages) as follo s: San Francisco: Borden, Arden and Foremost 63.7%; Ahunecla-Contra Cost.a: Borden, Carnation and Foremost 51.8%; Santa Clara.: Borden, Carnation, Arden, Beatrice and Foremost, 73.4%; San :l\ateo: Borden, Carnation, Arden and Foremost 56.6%. _Following the pattern evidenced in the Texas markets, Beatrice entereel the San J\fateo market in 1065 and Carnation entered the San Francisco Inarkct in 1958.

H.respondent' s growth.h pattern in Californift prior to its acquisition of Golden State is also disclosed by the record. Respondent mac1 its first entry into the California market when it acquired on February 11, 1952, International Dairy Supply Company, n, NCYflCb corporation, Oaklnnc1, California.. In the same transaction, respondent also acquired the capital stock of International Dairy Engincering Company, a California corporation, and Diamond Dairy, Inc., a. Nevada corporation. The total consideration for these three concerns ,vas $3 000 000 in cash ancl142 375 shares of Foremost common stock. International Dairy Supply ,vas engaged in the production and sale of recombinecllnilk, cream, buttermilk, ice cremn and cottage cheese. For the :year ended ,Tnnuary 31 , 1951 , International Dairy Supply had sales of ttpproximately $6 325 000 ttncl net income of about $912 000.

International Dairy Engineering Company purchased in the above transaction, was organized to do engineering research and to build plants ,wd supply recombined milk and other dairy products for the Far East operation carried out by International Dairy Supply Company.

Diamond Dairy, also purchased in the above transaction, was engaged in the processing and distribution of fluid milk at wholesa.le and at home-delivery retail in the Oakland, California, area,. For the year ended March 31, 1951, Diamond Dairy had net sales of approximately $737 000. Diamond had 2.4% of the fluid milk sales in the Alameda-Contra Costa. marketing area.

On December 5, 1952, respondent acquired R. A. Shuey Creamery, Oakland, California, which in 1952 had sales of about $1 084 000 in the Oakland area. Then, on ia.y 1, 1953 , Foremost acquired farin Dairymen s Milk Co., Ltd., San Francisco, which in 1952 had sales of about $9 500 000. Also acquired was Iarin s wholly owned subsidiary, Dairymaid CreamcT1cs, Ltd. , which had sales of about 000 000.

FORE:'IOST DAIRIES , INC. 1077 Opinion In February 1954 came the Golden State acquisition. After that me.rger, respondent, all J\IilY 31 , 193 ncqnil'cd Rechroocl Empire Dairics, Inc., which sold milk in 1, ortl1na and I-Iumboldt counties. This ,,,as iollmved Ivith the. acquisitioll: all --\.nglcst 19 , ID:JJ) of lInge Ltd" San Diego, California, ,with sales of about %4 676 000. This series of acquisitions in California indicates a common plan of expnnsion. IL1\'illg pl'eVioll ly bbnketcd most of the South, the Atlantic States, and the rniclcolltillent, rc polldent c1eciclecl to move into Cfll Ifol'n ia. He pOllclellt clearly had the re OUl'ces to enter this market and, indeed, had taken substantial steps in this dire.ction prior to acquiring Golden State. By acquiring Golden State, it not only removed an actual competitor in several iglliIicallt markets, but also eliminated its greatest single poteutial competitor in other parts or the State. Hespolldcnt's past gro\yth record e.lsewhere indicates that it ,vas just a matter or time until it ,'ould have moved into other parts of the St,rte. Its gro'\Yth pattern after acquiring Golden State indicated that it intended to do so. Thus respondent cli11111ate(1 precisely that final1 which had the financial and other re,sources to ofl' it the grcate ;L potential, as \yell a." immedia1c') competition. The probable effect of respondent's acquisition of Gclclen State must be determine,d ,,,within this industrial en-vironment. \Ve have dOlle so and have concluded that this i one or the types of mergers which Congress intended to prevent when it ,-vas considering amended Section 7. \Ve find no error in the heilring examiner s ruling as to this acquisition.

In addition to its argUlllcnt concerning the changing character of the dairy industry heretofore discussed in this opinion, respondent' principal contention with respect to its Goldcn State acquisition is that the hearing examiner failed to properly consider postacquisitional market (b.ta, which it placed in evidence, in determining the probable effect on competition of this merger. This same argument is llsed by respondent in challenging the hearing examiner s finding of the likelihood of adverse competitive etl'acts resulting fronl each or the other acquisitions ordered divested. Respondent' s argument on this point will be treated separately hereinafter since substantially the same considera6ons arc involved in this issue insofar as it relates to each such acquisition.

One other issue has been raised by respondent with reference to its Golden State acquisition. It is conceded by respondent that Golden State was engaged in commerce. 11owe\'er, respondent contend:. that the hearing examiner was in error in ruling that this acquisition ,yas jl1legal since there is no showing that Golden State was engaged in , 1078 FEDERAL TRADE COMMISSION DECISIOKS Opinion 60 1' commerce in the fluid milk line in which it competed with Foremost prior to the acquisition. Specifically, respondent argues that under Section 7, the adverse competitive impact mllst be felt in a line of interstate comlnerce in which the acquired company is engaged. Respondent' s argument is based on its interpretation of the statute. It points out that Section 1 of the Clayton Act provides that "commerce, as used therein means trade or C01111ne1'C8 among the several States, that is interstate C0111ne1'ce. It follows, therefore, according to respondent, that the competitive injury must occur in "any hne of (interstate) c011merce 1Ve do not agree with respondent's construction of this language which was .,jded by the 19,00 mendment of Section ,. It is our view that "line of COlllmerCe" denotes (t product market. It has thus been defined by the conrt in the B'i' o1J-n Shoe case supra and in other cases therein cited. 1\10r80ve1', considering the fact that the courts have helel that a single state or a lesser area. within a state may comprise an effective area, of competition, ',8 think it necessarily JoHows that the adverse C01l1petitive effects directly resulting from an acquisition can be measured upon intrastate competition. \V c do not think Congress in expressly broadening the provisions of Section 7 by the 1D50 alth ndment, intended to limit its application in the manner proposed b respondent. Section 7 does require that both the acquired and acquiring corporations be engaged in cornmcrce and this is conceded as to both Golden State and Foremost. I-laving met this requircment, adverse competitive effects resulting from t.he activities of such interstate companies whether such cf1eets be local or illtel'::Llte, are ""within the scope of Section 7,1 Even under respondent's interpretation of " line of commerce" as meaning a line of interstate comlnerce, the facts herein establish that the probability of a substantial lessening of competition as a result of the Golden State acquisition does occur in the fluid milk line of interstate commerce of the acquiring company, Foremost. Respondent' proposed extension of its interpretation to mean that the adverse effect must appear in an interstate line of commerce of the acquired company is without merit, In so-called " vertical" acquisitions, the courts have made it clear that the injury may be shown in the relevant line of commerce of either the acquired or acquiring firms, The same statutory language applieB to horizontal as \Yell as vertical mergers. As hereinbefore stated, respondent relies to a, great extent on postacquisitional market data in support of its argument that the evidence fails to sust:lin a finding of probable adverse competitive effects in t1 cr. Moore Y. Mead' s Fine Bread Co. 348 U.S. 115 (1954). FOREMOST DAIRIES, INC. 1079 944 Opinion each of the acquisitions ordered divested. Specifically, respondent contends that such a finding cannot be supported in view of evidence tending to show that subsequent to the acquisitions, in each of the individual markets, respondent's market share declined; the market share of competitors, including smaH processors, increased; and the' number of competitors increased.

Much of the market data upon which respondent relies are based on Federal Mille Market Order Statistics published by the United States Department of Agriculture. 1Ve have serious doubts that these data support respondent's position. That it cannot be relied upon to the extent indicated by respondent is obvious from the following introductory statements in the publication:

Because the volume of milk regulated in a given market is affected by changes in the definitions of handler, marketing area, and producer and because handlers sometimes become regulated or unregulated as the result of a minor shift in operations, the data herein compiled are llot adaptable to studies of markcting trends and unless the student is thoroughly familiar with the dcyelopments which have taken place in each market.

In arranging this information for convenient reference it has been necessary to sacrifice much of the detail which is important in evaluating individual market situations.

The market data relied upon by respondent are of little ,,-eight for other reasons. The evidence shows that it is commonplace for the market share of merging compa,nies to decline for a time after the merger for reasons not related to the ultimate effect of the merger. One such reason as refleeted in this record is that if an acquiring company discontinues the brand of the acquired company, it may lose those customers having strong loyalty to the discontinued brand. Respondent' s president testified as to this normal decline after an acquisition. Respondent's board chairman also testified to this fact but stated that he believed that such postacquisitional declines would last for only six months or less. While the timing and magnitude ef such declines may be debatable, it ;s obvious that such declines do occur for reasons which have little relationsh;p to the long-run effect of mergers on the state of competition.

Respondent cites evidence relating to its acquisition of Phenix Dairy in Houston as illustrating a "sharp decline in Foremost's market position in a six-year period follo"wing the acquisition . Yet the facts clearly illustrate that although there was an ;nitial decline in respondent' s market share after the acquisition, by 1958 respondent' s market position ;n fluid milk in the Houston area was slightly higher than it , Opinion 60 F.

\vas in 1954, the year following its first full year of combined operations. In this e.example, ",Y8 have six years of postaequisitional history as to market 5ha,1'8S, yet the evidence is still inconclusive. Such data insofar as their relationship to probable effects is concerned, are unstable and equivocal, and consequently their significance is inconclu- SIVe.

Respondent' s argument ignores the fact that as a result of those acquisitions herein found to be illegal, suostantinl competitors, actual and potrntial, have bern eliminated. As ",Y8 1U1-\8 previously point-eel out, the dairy processing industry is undergoing technological chf1ngcs which seem to be favoring the large firms. In such an environment it is especially important that substantial competitive factors not be eliminated from the competitive race. In this connection, however respondent repeatedly argues that in recent years there has been an increase in the number of dairies selling in certain cities, and that this is evidence of increasingly competitive market conditions. "\Vhflt this argument does not take cognizance of is that the number of dairy firms has been declining. Even in California, which is aile of the largest and fastest growing States, the number of fluid milk plants declined by 70 between 1952 and 1957. It may be true that in their struggle to survive and grmv, some independents, as well as the large multiplant dairies, have entered new markets, including some in which respondent made acquisitions. HO\vever, in an industry experiencing a substantial decline in the total number of firms, including the elimination, through mergers, of substa.ntial independents, it seems highly probable to us that the number of potential, as well as actual competitiors is declining. The court, in the Oro'()n Zellel'Dach case 81tpra set forth in a footnote a quotaUon from Bok Section 7 of the Clayton Act and the :Merging of L-aw and Economics, 74 Harv. Rev. 226, which ,ve consider to be significant on this point. The loss of a substantial firm, however, may of itself induce a reduction in the vigor of competition. For even if new entrants are coming into the market or concentration is for some other reason declining, there 'vil be one less substantial firm that '""auld have existed but for the merger, and an adverse finding under 7 is predicated on the presumption that competition would have been benefited had that firm remained independent. That there are other factors in addition to market share data which should be considered in determining the probable effect of any merger is well illustrated by the following quotation from respondents 1D53 Annual Report commenting on its Golden Sta.te acquisition: However, it is the implications of our dramatic growth in resources and scale of operations, rather than the mere figures themselves, which reveal fully FOREMOST DAIRIES , INC. 1081 944 Opinion the merger s true significance in relation to our COllp s future. Besides lidding substantially to overall volume, our new position in Californin contributes import.nntly to our company s geographical diyersitication, thus protecting it more fully from any local business declines. The additioll of GOWCll State brings our company s sales to a Ieyel where they can sllvport advertising and promotion on a national scale to an eyer-gro-wing degree. The greater fimlIcial strength and combined research facilities resulting from the merger wil perinit an even greater clevelornl1ent of lle,y l"Jroducts, 8THl of oyer-all product cliversifieatioll within the dairy field. -\Jl of these advantages should contribute significantly to fut.ure sales anll earnings. In the face of re ponclent's above statements concerning the postacquisition benel1ts flmying from its California merger program, respondent' s argument as to the significance of post-acquisition data lacks conviction and must be rejected.

\Ve come now to the issues rnised by the appeal of counsel supporting the complaint. First, they contend that the hea.ring examiner erred in failing to find that each of respondent's acquisitions of a corporate.ion shown to have been engaged in C01nme1'ce, considered individually, violated Section 7. In support of their argument, they set forth certain principles as applicable to each type of acquisition horizontal, conglomerate and m:Lrket extension, and argue that these principles provide appropriate bases for the conclusion of unlawful effect in each acquisition. Ilo ever, ,ve lia ve given careful considera tion to the relevant facts of record as t.hey apply to each separate acquisition and with one exception, to be discussed later, we are of the opinion that the evidence fails to support a, finding that the va.rious acquisitions, other than those previously discussed, considered individually, are likely to have the required n.clverse competitive effects. COlUlsel also a.rglle that the facts with respect to individual violations "constitute u, part of the factual basis for the violations of law arising out of t.he over- all acquisitional pattern (of responclents considered cumulatively." In substance, they contend that the effect Df the cumulation of competitive po\"er and advantage accruing to respondent from all of its acquisitions of corporations engaged in commerce alleged in the complaint, as amended, may be substantially 1.0 lessen competition or tend to create a monopoly. It is their position that with each such acquisition respondent obtained an additheytional measure of competitive strength and potential; thus, argue, each such accretion of competitive power contributed to respondent' s already substantial competitive advantage over a signifi cant number of small competitors located in the va.rious relevant sections of the country.

Opinion 60 Counsel supporting the complaint state that in connecion with this cumulative theory it is necessary to evaluate and consider each acquisition in relation to each other acquisition. However, in their view, it is not necessary to determine the point at which an accumulation becomes unlawful; that is, they contend that once unlawfu effect is achieved, the whole cumulative series becomes tainted with an ilegality which cannot be cured by partial divestiturc. Following this theory to its logical conclusion, they argue from the premise that unlawful effect has been achieved by the series of acquisitions that this acquisitional accumulation became ilegal with the combination of the second acquisition with the first acquisition in the series of acquisitions covered by the complaint, as amended. As we have previously pointed out in this opinion, the legislative history makes it clear that Section 7, as amended, is intended to permit intervention in a cumulative process when the effect of an acquisition may be a significant reduction in the vigor of competition. However, we do not think Congress intended Section 7 to be applicable to the extent urged by counsel supporting the complaint. In effect, they would substitute their theory for the proof of adverse competitive effect specified by the statute. It is our opinion that the cumnlative effect of a prior series of acquisitions by a respondent is an important element in determining the legality of a particular acquisition under consideration. As in the Jerrold Electronics case/ the cumulative effect of prior acquisitions may be such that, although not suffcient to require divestiture, there exists a reasonable proba:hility that the effects condenmed by the statute will occur as the result of any future merger. Although it can be shown from a consideration of all the facts, including the cumulative effects of prior mergers, that a later acquisition does have the required adverse competitive effects, this obviously docs not constitute proof that such previous mergers were also illegal. Accordingly, we must reject the argument of counsel supporting the complaint on this issue. One further aspect of this cnmulative theory requires our comments. As we interpret the initial decision on this point, the hearing examiner rued that this cmnulative process has no application to those mergers where respondent and the acquired concerns did not operate as competitors in the same geographical areas. Thus, he ruled that the cumulative effects of respondent' s mergers cannot be considered in determining the legality of its conglomerate and market extension acquisitions.

13 United States v. Jerrold Electronics Corp" 187 F. Supp. 545 (E.D. Pn.. 1960)' FOREMOST DAIRIES I:'C. 1083 Opinion It is obvious from our previous discussion of the competitive situation existing in the dairy industry and the advantages of diversification, that acquisitions by large firms in this industry have implications for competition regardless of the fact that they do not occur in markets in which the acquiring firms already operate. It is equally clear from the legislative history that Section 7, as amended, is intended to embrace all types of acquisitions regardless of their designations. Therefore, the question of \whether a particllla.r conglomerate or market extension merger violates Section 7 must be answered, just as in the case of horizontal mergers, by 'a showing that the merger may have the effect of substantially lessening competition or tend to create a monopoly.

The hearing examiner s ruling on this point presents a question as to the t.ype of evidence ,,-hieh is required for such a showing. liere we f1l1d the House and Senate R,reports to be of assistance. First, it should be recalled that the House rmd Senate hearings and reports on amended Section 7 made extensive references to the Report of The Federal Trade C01JVlnission On The Jl ergeT J1ovem,ent. Among other things the House Report accompanying alnenc1ec1 Section 7 used examples from the Federa.l Trade, Commission re-poli, to describe the types mergers it intended Seer-ion 7 to ('over. For example, it used The Borden Companies acquisitions during 1940-47 to illustr;tte what it meant by conglomerate ll1ergers. In fact, the term "conglomerat.e merger apparently first came into common usage with the publication of the Federal Trade Commission report on the 1940-47 merger movement. IVithin this context it seems appropriate to see ".hat that report had to sayan the significance of conglomerate Inergers: . , . \VHh the economic power " which it secures through it operations in many diverse fields (the giant conglomerate corporation may attain an almost impregnable economic position. Tbre'atened with competition in anyone of its yarious activities, it ma;r sell below..v cost in that field, offsetting its losses through profits made in its other lilles-a practice which is frequently explained as ODe of meeting competition. The conglomerate corporation is tllUS in a 'position to strike out with great foree against smaller business in 'a variety of different industries. As the Oommission has previously pointed 'Out, there are few greater dangers to small busines's than the continued growth 'Of the congloilerate corporation. This description emphasizes the e rly ;a,warencss of the Commission to the potential dangers to competition of the acquisition of a small independent firm by a large conglO1l1Crate one. The remaining small firms in such 'a market may be placed at a serious competitive disadvantage. .Whereas their survival and profitability are determined by how well they do in selling a particular product in one market or a Report of tM Federal Trade Oommission on the Merger Movement 1948, p. 59. &:

Opinion 60 P.

few markets, the conglomerate firm s profitability and survival depends upon its market position in many products sold in many markets. The resultant dispa.rity in size and type of operations permits the large conglomerate to strike down its smaller rivals with relatively little eilort or loss in over-all profit.

This potential market advantage of the conglomerate finn is also possessed by a firm which sells a single product, but sells it in many separatomarkets. In this case, its operations in individual.l marketg are not constrained solely by market conditiolls peculiar to it. It is for this reason that ll1e.rgers involving market extensions such as Foremost made in entering many ncw markets, may also be viewed and judged, in part, on the same grounds as conglomerate 1nergCl's. Therefore, in this eol1sidcratioll of the type of evidence required to csbtblish a violation of Sect.ion 7, conglomerate and market extension acquisitions must be treated tog-either, as did the hev"ring examiner. There are no final COllunission or appellate court de.csions involving conglmllerate mergers brought under Section 7. There are, however eloquent examples of the achievement of conglomerate power and the llse of such pO\\'er which have violated the Sherman Acts Amended Section 7 is designed to prevent the developn1ent of monopoly in its incipicncy. The test is not intended to be mergers Tesulting in substantial market pmyer and actual elimination of competition but rather mergers which llWY t.end to lead to this end result. This distinction between proof as to actllJrl injury required under the Shennan Act, and potential injury under.r Section 7 is ,yell does111ented in deeisions involving horizontal and vertical mergers. Applying this distinction to lnarket extension mergers leads to a logical inference that under Section 7, the necessary proof of violation of the statute consists Jf types of eviclenee showing that the acquiring FInn possesses sigl1iiicant power in some rnarkets or that its over-all organization gives it a decisive advanta.ge in effciency over its smaller rivals. "'Ve t.think it clear that the. cumulative effect of a series of mergers is of importance a.nd has a direct bearing on this market power a.nd possible competitive aclva.ntfLge of an fLcquiring firm even though a later acquisiti.ou takes place in a lnarket in which that firm did not already operate. The aforesaid ruling of the hearing examiner on this point i5 rejected.

As previously mentioned, it is our opinion that the appeal of counsel supporting the complaint from the hearing examiner s ruling dis- 15 United States v. E. I. dupont de Ne1nour8 00. 188 Feel, 127 (Clr. Ct. D. DeJawure 1911) ; Uniteil States v. Swift 00., 286 U. S. 106 (1932) ; United States v. Swift Co. 189 F. Supp. 885 (N. D. Ilinois, 1960) ; United States v. Griffth 334 U. S. 107 (1948). FOREMOST DAIRIES, IXC. 1085 944 Opinion missing the Section 7 charge as to OIle particular acquisition, which he designated as a market extension, should be granted. "\Ve refer to respondent s acquisition of Philadelphia Dairy Products, Inc., Philadelphia, Pennsylvania, and its four snbsidia.ries. :'Inny of the relevant facts concerning this 1116i'ger, as shown on the record, ate fully set forth in the initial decision. BrieHy, respondent acquired operating control of Philadelphia Dairy in July 1955 ancl by Iay 1956, hael obbtined 96% or the capital stock or that company. Prior to the acquisition, Philadelphia Dairy and its subsidi tries processed and distributed fluid milk and allied products, including ice cream, in Pennsylvania, Xew York, New Jersey, Delaware, :Jfaryland and Virginia. In 1954, they had net sales of approximately 000 000; a net income of a-approximately $1 200 000, and total assets or a pproxinmtely $22 000 000.

The only area in which respondent was in competition with Phil a:. delphia Dairy was that surrounding Brooklyn, Kew York, where they both had engaged in the sale of ice cream prior to the acquisition. 195-:, respondent had sales of 330 225 gallons of ice cream in the Brooklyn are,1 , and Philaclephia, Da.iry s sales were 531 012 gallons. PhiJac1e1phia Dairy sold about one-third or its fluid milk in the Philadelphia area. This made it the third largest dairy in that market and represented 9.3% of the fluid 111ilk sold therein at the time of the merger. Philoclelphia. Dairy's principal competitors in this market ,were two subsidiaries of National Dairy and two independents Abbott s Da, iry and 1-Iarbison s Dairies.

The hearing examiner rulecl that respondent' s acquisition of Philadelphia Dairy Products, Inc. , primarily a market extension, did not violaie Section 7 for the reasons that (1) the evidence does not disclose that Phila.delphia Dairy "'"as the dominant concern in the Philadelphia area whereby respondent immediately obtained a decisive competitive a.advantage, and (2) there is an absence of proof that respondent was able to, and did, utilize 1110110polistic practices to advance its position in the new area, of ( ompetition. This ruling' is obviously in error, as it applies Sherman Act Lests to a Sect lon 7, Clayt.on Act, proceeding. As we have heretofore stated the only test under Se,ction 7, as shown by the legislative history and interpreted by the courts, is whether there is a reasonahle probability of a substantialle.sscning of competition or tendency to a monopoly as the result or a merger. IVe repeat the well- settled principle that Section 7 is intended to supplement the Shennan Act and prevent competitivo evils in their incipiency. 'Ve agree with the argument of counsel supporting the complaint that Congress did not intend the 1086 FEDERAL TRADE COMMISSIOK DECISIOXS Opinion 60 P.

Commission to sit back until the dominant concern in a market was acquired or 111onopolistic practices became an actuality before proceeding under Section The hearing examiner held that the above tests applied in determining the legality of all of respondent' s acquisitions clmracterized as Inarket extensions. \Vhile this holding is in error, we have concluded from a review of the record that the evidence will not sustain a finding of probable adverse cOlnpetitive effects in any acquisition of any type other than those ordered divested by the hearing examiner, \"ith the exception of tho on8 with which we arb here concerned, jJhilaclelphia Dairy Products, Inc.

From the facts set forth above, it is clear tlmt Philadelphia Dairy represented a substantial factor in the Philadelphia area. Its 1954 sales of about S48 000 000 were equal to respondent's sales in 1950. This merger greatly augmented respondent's size and contributed substantially to the market po\,er associated with very lttrge-scale operations.

Philadelphia Dairy's growth experience dcmonstrates that it grew with the expanding Philadelphia market and indicates that it constituted a substantial competitive factor in that market. Also, its growth pattern indicates that by 1956 it had expanded outward from Philadelphia into a six-state area. Its profits at the time of a.acquisition indicate that it was a vigorous, successful, independent firm \which had succeeded in competing with its larger rivals. The acquisition of Philadelphia Dairy by respondent replaced a large, growing, successful, independent dairy operating in a six-state area, with Foremost. It is true that apparently the only immediate effect on competition was in the Brooklyn area. However, we are concerned with the probable ultimate effect. Respollclent's growth history prior to the acquisition demonstrates that it was rapidly expanding its operations over an ever-widcning front, and that this expansion was bringing it eVPT closer to Philadelphia Dairy's market areas. By the end of 1950, respondent had expanded outward from Florida until it blanketed almost all of the Southern States. Also prior to 1950 it already had penetrated Pennsylvania with the purchase of the ice cream business of :Meaclow Gold Dairies, Inc., in Pittsburgh. It also operated its ice cream plant in Brooklyn, New York, as early as 1942.

After 1950, respondent expanded its operations northward from its base of operations in Florida. In 1952, it acquired the aforementioned and the Welch :VIik Co.Southern .:\aid, Inc. , in Bristol, Virginia, in IVelch, IV est Virginia. In 1953, it acquired Old Hundred, Inc. , FOREMOST DAIRIES) INC. 1087 944 Opinion operating an ice cremn business in Southbury, Connecticut, with sales of $2 291 000 in 1952. In 195'l, respondent acquired Thompson Brothers Ice Cream Co., which operated ,within a, 100 mile radius of Butler, Pennsylvania. Butler is located north of Pittsburgh. It is within the context of this prior growth pattern of respondent that its acquisition of Philadelphia Dairy should most properly be viewed. Here 'VB have an acquiring firm which had been located in Philadelphia Dairy's Drooldyn market since 1942, had entered western Pennsylvania before 1950 and in 1954 acquired another firm in western Pennsylvania, had expanded by merger its position in Virginia and 'Nest Virginia in 1953, and had penetrated C0l1lectieut to the east of Philadelphia Da.iry s market in 1953. These facts indicate to us that not only did this merger result in the elimination of actual competition in and around Brooklyn, New York, at the time of the acquisition, but the merger l'csu1te.cl in the e.elimination of potential competition between respondent and Philadelphia, Dairy throughout the six- state area, in which the Intier firm operated. Re.spondent's expansion was bringing it ever nearer to Philadelphia, Dairy's market perimeter; then, rather than compete its ,yay into this very size.able market, Foremost. acquired PhiJadclphia Dairy, one of the largest independent dairies in the country. I-lad the respondent not acquired Philadelphia Dairy, respondent would stillhtLve had an incent.ive t.o enter by external expansion, and Philadelphia Dairy would have had an incentive to penetrate respondent' s areas.

Both concerns had the financial and other resources to make such a penetration. Rcspondenfs ple 19;)5 growth history in other area.s and in the Pennsylvania-Ne.w England-,Yest Virginia-Virginia. areas is a clear indicat.ion that respondent would, in all probability, have closed the perimeter and entered Philadelphia Dairy s market areas in the near future. Significantly, while the record demonstrates that Forenlost showed a predilection for growth by the merger route, it can and has grown via the internal growth route as well. Its own pre lD50 and post-1955 growth history attests to tills. For example, in its 1949 Annual Report, Forem.ost discussed the three types of expansion followed during the yeai'. It first discussed the " new communities" served by Foremost. In this category it included Chipley, Florida, where it started an entirely new milk processing and distributing business plus other areas which it had entered through acquisition or internal g-rowth. The second type of expansion discussed new communities served fronl existing plants. Included in this category was "Fort Pierce, :Florida-where ice. cream made in our Miami pla.nt is now being distributed. " Also Americl1s, Georgia-where we are now 1088 FEDERAL TRADE CO:\MISSION DECISIOC'S Opinion 60 F.

distributing ice cream rrom a plant which was rormerly devoted 'exclusively to the manuradure or butter." The third cawgory mentioned involved improvements in established plants. Thus, in addition to growing by mergers, Foremost entered some new markets by ilding new plants in them; it entered others by serving them rrom est",blished plants located in other markets. The record also indicates that Foremost expanded into new markets :following acquisitions. For example, t11C record shows the following geographic expansion in lca-nsas Iissollri, and Arkansas, between the time it acquired American Dairies in 1954, and .January 1, 1957. The Joplin, :.\issollri, sales area was expanded to include Independence Kansas; Bridge Hill, Butler, and Adrian, Missouri. The Kansas City, :\1missouri, sales area was expanded to include Kansas City, ICansas and Columbia, 11missouri. The Paragoulc1 Arkansas, sales area was expnded to include Poplar Bluff, Missouri; Forest City, Parkin, Earl and Batesville, Arkansas.

The unique aspect or the Philadelphia acquisition is Philadelphia substantial size and widespread operation. For here Foremost acquired a firm which wa.s as large in 1955 a,s ,vas Foremost in 1950, the yea.r before it embarked upon its merger-accelerated growth of the 1950' s. Philadelphia clearly had the ability to expand its operations. Between 1946 and 1952 it spent ten million dollars all expansion. About nine million dollars of this was spent on new plants and equipment and about one million dollar.rs was devoted to acquiring other concerns. In commenting on the acquisition of Philadelphia Dairy, Foremost' s 1954 Annual Report stated: "Long recognized as one of the best managed and well-established enterprises in the da,iry field Phila,delphia Dairies processes and distributes an extensive line of dairy products from "\Vestchcster County, to Richmond, Virginia including Dolly :Madison ice cre. , one of the most popular high quality bmnds or the East.

The probable adve.rse effect of this merger on potenhal competit.ion becomes apparent when viewed in the industrial enviromnent within which it occurred. :Much of the discussion elsewhere in this opinion concerning this environment has a direct application to the significance of this Requisition. The decline, in fluid 11lilk c1ist,ributors, the increasingly ha.rsh technological and market factors confronting mall businesses, the acl\'Ultages going to firms ,with large financial resource" , al1 indicate that small dairies are having an increasingly diffcult time. This speaks ill for the prospects of new entrants in this industry. pointed out above, in decades past, new competitors could enter this industry relatively easily. But, today, technology and other ractoTS , FOREMOST DAIRIES, INC. 1089 944 Opinion have created substantial barriers to prospective entrants. In this situation the chief source of new rivals in local milk markets is the entry of firm already operating in other markets. However, when such established firms enter new markets by acquiring the leading independent firms, they destroy potential competition in two ways: they eliminate the acquired company as a competitor iu the acquired firm markets, and the acquired firm is I'llloved as a potential entrant in the acquiring firm s markets. Such mergers dry up the most promising source of potential competition. As evidenced by the Texas and California markets, this is not an untested hypothesis. In Philadelphia it is becoming, if it has not already become, a rcality. At the time of this acquisition, t.he large National Dairy had entered and was well established in this market through Supplee iilk & Ice Cream Co. described as being by fu,r the largest company in the area in fluid milk and through Breyer Ice Cream Co., estiuwted to be the largest ice cream company in the worlel. Foremost, of course, becmne the third largest dairy in the market throught its acquisition of Philadelphia Dairy. The record does not disclose the cunent sbtus of Abbott' Dairy, which appa,rently 'was the second largest dairy in 195.1. I--ow eveI' the record does show that in 1956, Borden purchasod Sylvan Seal Company, Inc., a Philadelphia c'OllCBrn which, as indicated by the Dairy Credit Books, had very substantialmiJk distribution in that area. The transformation in this market is, therefore, nearly complete. Large firms are replacing the la.rgest independents and have forever removed them as potential competitors of the acquiring and other dairies.

As previously noted, continuation of recent dcvelopments indicates that there may be relatively few fluid milk firms surviving in this industry within another decade. ,Vl1en market concentration is high the main, and sometimes the only, restraint on the use of market power by oligopolistic sellers is potential competition. This makes it imperative that especially those independent firms with the capacity to offer present and potential competition not be eliminated by their large potential rivals. It is our judgment that this was the sort of situation which the framers of amended Section 7 had in mind when they expressed concern with mergers which tended to lessen competition. Accordingly, we find that the effect of respondent' s acquisition of Philadelphia Dairy Products, Inc., may be substantia1Jy to lessen competition. The hearing examiner s ruling that this acquisition does not violate Section 7 is in error, and his order win be amended to require divestiture of this concern. 1090 FEDERAL TRADE COMMISSIOC' DECISIOC'S Opinion 60 J;' The headng examiner found that respondent's a.acquisition of Florida Dairies Company in 1955 gave it a decisive competitive advantage over its competitors in the sale of fluid milk in the Miami Florida, area. However, he ruled that Florida Dairies was not engaged in commerce within the meaning of Section 7. Counsel supporting the complaint has appealed this ruling. It is clear from the record that Florida Dairies sold no dairy products outside the State of Florida. It did, however, sell in its local market heavy cream, condensed skim milk and cottage cheese which it purchased from a wholesale supplier operating a warehouse in Miami, who had previously purchased these items from a supplier outside the State. These purchases, it is argued by cOIIDsel supporting the complaint, provide suffcient basis for the statutory requirement of interstate commerce.

Counsel have cited scycral cases in support of their position. I-Iowever, most of those cases involve proceedings under the Sherman Act and, moreover, the facts are c1is6nguishable from those herein. As was the situation in the three Texas acquisitions which we previously discussed, the cases primarily relied upon involve the purchase and movement of goods from an out-oI-state supplier directly to the company under consideration. Here, however, it appears that Florida Dairies had made purchases of goods which had moved in commerce but which, insofar.r as we can c1eteruline frolll the record, had come to rest in the hands of a wholesaler. Florida Dairies did not place the order for the products with the out-of -state supplier, nor is there any indication that the wholesaler placed any particular order with the inten60n or expectation that it would be reshipped to Florida Dairies. Under the circumstances, the evidence does not susta,in a finding that Florida Dairies was engageel :in commerce and the appeal of counsel supporting the complaint on this issue is denied. There remains for our consideration one final issue presented by coll11sel support.ing the complaint. As originally stated herein, the ame,neleel complaint in this matter: in addition to the Section 7 Clayton Act charge, also charges a violation of Section ,') of the Federal Trade Commission Act. Specifically, the complaint charges that respondent' s constant and systematic elimination of actual and potential competitors by means of the acquisitions referred to therein, including those of noncorporate organizations, as well as corporations which were not engaged in comnwrce, are all to the prejudice and injury of the public and constitute unfair methods of competition and unfair acts and practices 'within the intent and meaning of Section 5. , FOREMOST DAIRIES, INC. 1091 944 Opinion Throughout this proceeding, including his disposition of the Section 5 charge in the initial decision, the hearing examiner has been consistent in his position that the Commission does not have authority to proceed under Section 5 in a matter involving mergers. However as a result of two interlocutory rulings by the Commission, we are allowed the benefit of a record from which a conclusion on the merits of the Section 5 charge can be based.

Counsel supporting the complaint has llsed a two-pronged approach in their attempt to prove a Section 5 violation. They iirst contend that Section 5 has been violated for the reason that each individual acquisition charged in t.he complaint Nhethcr 01' not such acquisition meets the commerce and corporate requirements of Section 7, has the adverse effect on competition prescribed by Section 7. It is not necessary to rule ou the validity or this effort to establish an unfair TI1cthod of competition by n showing of individual illegal acquisitions as we conclude that the evidence in this record will not sustain a finding of the Section 7 adverse competitive effect requirements as to each of respondent' s acquisitions upon ,,,hic11 counsel rely. Counsel supporting the complaint's second approach to the Section 5 charge is a broader application of the cumulative theory previously discussed under the Section 7 charge. Their argument here is broader in that they include in their consideration of cumulative effect not only those acquisitions meeting the technical requirements of Section 7 but also respondent' s acquisitions of enterprises 'which either.r are not corporations or arc not engaged in commerce. In substance their argument here, a,s under Section 7, is that the cumulative effect of these acquisitions may be substantially to lessen competition or tend to create a monopoly in the dairy industry. They maintain that respondent obtained an additional measure of competitive strength and potential through each acquisition which contributed to its already substantial competitive advanta,ge over numerous smaller rivals.

vVe have previously rejected the argument under Section 7 that certain acquisitions in a series of acquisitions, none 'Of which can be shown to have the adverse effect on competition required by Section 7, become illegal and may bo ordered divested for the reason that the cumulative effect on c0111petition of these prior mergers may be such as to make any further acquisition i!Jeg"J. On the other hand we have no doubt that where, as here, a respondent with a proclivity for growth by acquisitions is charged with tL violation of Section 5 the cumulative effect of all of its Requisitions is of importance. This however, is not the only factor to be considered in determining whether 119-603--64-- 1092 FEDERAL TRADE COM:ISSIOX DECISIONS Opinion 60 F. T.

such respondent should be required to cease and desist from making further acquisitions. Counsel supporting the complaint has introduced certain evidence as to the effect on competition of all of respondent' s acquisitions considered cumulatively. We note, however that an order requiring respondent to divest itself of certain corporations wil to that extent dissipate the cumulative effect on competition of all of these acquisitions. IVe have found that ten of respondent' corporate acquisitions are illegal and our order will require divestiture of those concerns. Weare fully aware of the problems connected with unscrambling" commingled assets problems inherent in almost every merger matter which has come before us. 1Veighed, ho,v8ve1', against a consideration of such diffculties must be a consideration of the protection of the public interest the restoration of stifled competition. IVe believe that we can protect the future of the dairy industry by continued vigilance, but that is not enough. "\Ve must make a forthright effort to restore competitive conditions. This requirement for divestiture will reduce Foremost to less than one half its present size and return it to approximately the same relative position it held in the industry prior to 1951. It is our opinion that there is not sufficient evidence in t.his record from which to determine t.he competitive effects of any future acquisitions by Foremost after these divestitures. Accordingly, the appeal of counsel supporting the complaint on this issue must be denied.

All other issues ,which have been l'aisec1 by respondent and counsel supporting the complaint in their appeals have been considered and are rejected. The appeal of respondent is denied and the appeal of counsel supporting the complaint is granted in part and denied in part. The initia.l decision to the extent that it is contrary to the views expressed in this opinion will be modified to confornl with such vic\vs. An appropriate order wil be entered.

Commissioner Elman dissented in part and COlnmissioner Iae Intyre did not partiei pate in the decision herein. lU 'iVblle it has been said that the Commission s orders are remedial rather than punitive, nevertheless, it is generally recognized that oruers of divestiture hllYe certain harsh and punitive characteristics. Compliance with the specific divestitures required here wil involve massive changes in the respondent' s corporate structure. This the respondent shoula have considered when it deliberately embarked upon its program of acquisitions. Protection of the public interest Is the paramuunt consideT!ltion, as the Supreme Court saia in United States v. dltPont 00., 3GB S. 316, 323 (1961) : The proper disposition of antitrust cases is obviously of great public importance, ana their remedjal phase, more often than not, is crucial. l"or the suit has been a futile exer. else if the Government proves a violation but fails to secure a remedy adequate to rearess it. 'A public interest served by such civil suits is that they effectively pry open to competition a market that has been closed by defendants' ilegal restraints. If this decree accomplishes Jess than that, the Government has won a lawsuit ana lost a cause.' International Salt Co. v. United States, supra p. 401. FOREMOST DAIRIES, INC. 1093 944 Dissenting Opinion OPINION, DISSENTING IN PART By ELMAN C01n/lnusioner:

It is regrettable to find oneself unable to join an opinion containing so much that is fundamentally reasonable and right. In its abstract discussion of the standards of legality governing mergers under Section 7 of the Clayton Act, the opinion expresses broad general principles -which are unimpeachable. Yet, when it comes to judging Foremost' s series or acquisitions and f0r111u1a.ting appropriate relief, the Commission seems to lose sight of the-se salutary principles. The result, I fea.r, may be to create needless confusion and uncertflinty. In refreshing contrast to some earlier pronouncements on the subject the Commission s opinion here recognizes that the 1950 amendment or Section 7 of the Clayton Act rejects a Congressional policy towards corporate acquisitions that js not to be deduced merely by reading the words of the statute. The long, careful consideration given to tho legislat.ion by Congress evidences a mood and attitude tmvards mergers that must be t.aJcen into account by those charged with giving Section 7 practical mcnning and effect.

Congress, to be sure, 1Vf!S concerned with excessive concentrations of econ01nic po-wer resulting from Illel'gers; but its concern went far beyond the narrow economic iInplications of such concentrations. As Professor Bok has pointed out, Congress-observing that "competitive, small business industries * * * ,were steadily being transfonned by Inergers into oljgopolics was fearful that "the growth or these large economic groups could lead only t.o iucre,a.sing government control; freedom would corrode and the nation would drift into some form or totalitarianism. * * * There were arguments HULt concentration narrmved the opportunity to have one s own business, depressed local initiative', and civicresp011sibilit.y, and diminished the scope of cntrepreneurshi p by forcing small businesses to become ever more subject to the dictates of large concerns. * * * ent seems abundantly clear that 'competition' Ineant far 11101"8 to Congress tha,n prices, costs and product innovations." (Bok Section of the Clayton Actand the lilerg;ng of Law and Economics 74 Harv. L. Rev. 226, 235- , 248 (1960). )' In short, the conclusion which starkly emerges from the ;: See Dlso the excerpt from the House committee report quoted in footnote 4 of the . majority opinlon.

1094 FEDERAL TRADE COM:IISSIOX DECISIOKS Dissen ting Opinion 60 F.

legislative history is that the policy expressed by Congress in amending Section 7 was political and social, as well as economic. In my concurring opinion in the Union Carbide case (Docket 6826 September 25 1961), I urged the Commission to lose no more time in formulating, as best it can, reasonably clear and specific criteria for determining the legality of corporate mergers. As I there stated, it serves the interest neither of effective administration of the statute nor of affording necessary guidance to businessmen for the Commission to announce that it wil judge the legality of mergers upon consideration "of all the relevant facts of competition and other 1lftrket factors and that "every case must be decided on its own facts. In the light of the Congressional policy on mergers expressed in Section 7 and its legislative history, the Commission surely can differentiate among relevant factors, indicating which are more significant and which less, and proce,eel to develop 'I-orkable standards of legality. In dealing with Cfl es lUldel' t.he Shcl'miUl: where the Sltltutory guidelines are Jess prceise the courts hate Jwell ;\ble to defiiJ limits of restraint of tracle ' by recognizing certain types of busines activity as pel' se violations and by formulating intelligible cmd consist(' nt standards for judging activity fa.lling Ivithin the so-called " rule of reason. Referring to the Sherman A_ct (;ases Judge Friendly has observed: " Iyould seem that if courts hate been able thus to crystallize general standards, administrative agencies should be :lble. to do somethilJg of tho sort, even though they CHn hardly take as llUU1J' years to get. the job done. " 3 III For-emoses series of acquisitions does not fit Jleatly into tlle " horizontal" 01' "ve.rtica.r' categories within which most previous Section cases have been decided. Although a, few of these tlcquisitions Yrel'e in :a.A recent editorial in the London Economist (February 3, 1862) indicates that II discerning observer from without can sometimes sec more clearly than those wlthilJ. ' editorial discusses "the mistaken aSSllmptlon wblch economists arc guilty of encouraging-that political objections to monopoly c'-n be altogcther based OIl evidential grounds, economic or technical" It goes OD:

The '(nlted States-which is often accused in Europe of baying an cxaggerated animus against monopoly, because It has a polley that quite often works seldom falls into this trap. Its legal prejudice per 8e against an;rthing cD.lculatcd to restrain competition, is flvowe(1ly based, in the last resort, on social and even moral grounds; the ecolJomic eff. clency that it believes competition g-cncrally promotes is the secondary justification, not the fist. .Prlrnarlly, .American attitudes towanls monopoly (public as well as private) are based upon a distrust of concentrations of economic power, irre;;possible in that the:r are not finally accountable to thc public. 'l' bis does not rnlJkc Americrll anti-trust legi"lation emotional and Ineffective; it makes it at times even embarrassingly effective. 3 Friendly, The Federal Admil1fstrative Agencies: The ),' eed fO)' Better Definition 01 Rta.nclanls 75 Harv. L. Rev. 863. 877 (lfJ62). FORE::OST DAIRIES ) IXC. 1095 Dissenting Opinion l11markets in which Foremost 'vas a.already doing business, there competitive significance is obviously not as a group of unrelated and for the J110St part unimportant acquisitions, but as part of an industry trend 01' pattern whereby Foremost and a fmr large competitors have become na.tional companies dominating t.he dairy industry. It is for this reason that the present case takes on special significance. It furnishes timely occasion for the COlIU11ission to make clear that the "competition;; which Congress intended to preserve and protect in Section 7 is llot. a. narrow' economic concept.

The kind of mergers here. hrcolved 'was very much in the minds of the legishttors who in 1850 amended Section 7 of tile Clayton Act. Indeed, the 'House committee report on the amendment cited the acquisitions made. by one of Foremost's competitors as an exmnple of the type of behavior with ,, which it was concemed (H. Rept. 1191, 81st Cong., 1st. Sess., p. 11), Similar mergers have also received the continued attention of the Commission both before and after the amendll1ent of Sect.ion 7. '\.cqlljsit.ions in t, he dairy industry were the sub jeet. of reports published in 1937, 1948 ' and 1955 and have been challe,ng-ed in fOlll' Com1lis iol compla.ints, inelucling this one, issued in 195G.

The gp,Jwral principles stated in 'the first P,ltl of the Commission opinion give promise of a broad and comprehensive disposition of the issues raised by n, series of acquisitions of this type. Reviewing the legislative history of the 1950 amendment to Section 7, the opinion recognizes that n. primary concern of Congress was to prevent the demise of traditionally small business industries (1'. 1051) and that t.he amended statute !\"IS intended to prevent such transformation of an industry from being achieved through a process of cumulative acquisitions (p. 1050). Froln the outset the Commissions opinion makes clear that Foremost's acquisitions are not to be viewed sepa" rately and in isolation but cumulatively and against the backgrOlmd of it.s total grO'vth an(l development (p. 10-:9) and oJ transforming 'The type of acquisition pattern which has transformed the dairy industry was vividly described in the 1948 report:

Typically, the .frms which have followed this pattern have grown by buying up concern!' making the same product in one or a few localities, strengthening their position in those localities by additional acquisitions, branching out to obtain control in other localities consolidating their local acquisitions into broad regional or district orgllizatlons, bringing into the fold leading companies in the major regions, and, by this steady pattern of encroachment, becoming nation-wide organizations with a substantial degree of control in the Nation as a whole, 11 much higher degree in many of the important regions, and Ii near-monopoly position in numerous individual localities. It is in such fields as dairy products and bread that this type of merger activity has been pushed most vigorously. In fact the growth of such outstanding nation-wide companies as National Dairy Products Corp. and Borden Co, could be likened to an acquisition itinerary, sweeping across the country from one large city to another, and gathering in its 'Wake hundreds of companies serving small communities as well, " (Report of the Federal Trade Commission on the !\merger !lovempnt, p. 37, Dissenting Opinion 60 F.

structurtl changes in the dairy industry ,vhereby a few major companies have grown large by a.cquisitions while the rest of the industry continues to ,be made up of small independent companies-a trend \"hieh, as has been stated, was noted by the COlllnission in three of its economic reports and by complaints chnlle,nging the legality of acqui. sitions by others of the large dairy companies (pp. 1058-1059). Though seeming to ha VB recognized the primacy of t.these broad legis1ntive objectives, in the light of which the Commission could rcaJisticnJly judge Foremost s acquisit.ions in t11cir totality and as contributing to the drast.ic tranSfOl'Hl;tion of the structure of the cla.iry industry, the COllmission s opinion docs not give them suffcient application, I believe, in dealing with the facts of this case. ",With minor exceptions, only the eight "horizontnF acquisitions which the ex,uniner found unlawful arc discussed by the Commission in relation t.o their industrial setting. The principal exception is with respect Lo the acquisition of Philadelphia Dairy. Even there, Foremost' growth pattern in the Philadelphia area is relied on only as a basi for the conclusion that the acquisition eliminated potential competition with Foremost, and not as reflecting a broad trend tory,trc1 increasing concentration and decreasing competition in the dairy industry. As to the remainder of ForemosVs acquisitions, although the Commission expressly rejects the exmniner s refusal to consider the cumulative e, He.ct of a series of "market extension ' acquisitions (pp. 1084, 1085), its own view of the matter is no broader. It concludes merely that considered individually the evidence does not support a finding that the various acquisitions are likely to have the required adverse competitive effects (p. 1081).

The reason for This narrow approach is not altogether clear. seems to stem in part from the rejection of Commission counsel' s contention that where ft series of acquisitions may substantially lessen competition, the entire series becomes tainted and it is unnecessary to determine at wh tt point in the series the competitive effects reached the level proscribed by the statute. But although the Commission was perhaps justified in rejecting this theory, surely this should not have aifected the decision here. The period covered by the complaint did not begin until 1850, and hy that time Foremost had already made 41 acquisitions (p. 044:) and its major competitors had made may more. Even though Section 7 may not reach these pre- 1D50 acquisitions their effect should certainly be considered in determining FORE:yost DAIRIES, INC. 1097 941 Dissenting Opinion the effect of those taking place after that date. In short, the incipient if not the actual, effects of Foremost's acquisitions must have become apparent by 1950.

J\ more plausible reason for the Commission s failure to consider FOl'emost's series of acquisitions in broad perspective is that although the opinion refers generally to the trend of a.cquisitions in the dairy industry as a. ,whole, detailed information concerning this transformation of industry structure is not to be found in the record of this proceeding.

This information is not, however, unknown or umtvailable to the Commission. As the majority opinion points out, the Comnlission described in detail the acquisitions by severn 1 of the leading dairy companies in its three econ101nic studies mentioned above, and this information has subsequently bee-n supplementcd by factual data introduced in the Commission s proceedings challenging the acquisitions made by four of the major dairy companies. For example dat.a introduced in t,yO of the other dairy proceedings indicates that between 1923 a.nd 1961, eight large dairy companies made a total of nea.rly 2 000 acquisitions.

It is precisely this type of industry information, gathered h1 the performance of its va.rious functions, ,,,which provides the Commission ,with the h:nmYlec1ge nnd experience upon 'which Congress expected it to rely in determining the legality of competitive practices. To ava.il itself of this information in the present case, the Commission need only make a. limited remand to the examiner with precisely-dnl\yn instructions as to the type of evidence ,,,which should be received to complete the record.

Tho failure of ihe Commission lLdequately to apply the broad principles stated in the first pa.rt of its opinion is also reflected the relief 'which it orders. Divestiture of the largest of the acquisi,. tlons which the Commission finds unlawful, most importantly those of Golden State and Philadelphia Dairy, is unquestionably required and reestablishment of these companies as independent competitors should help restore competitive conditions in the dairy industry. r; I question whether divestiture of some of the relatively unimportant acquisitions which the COllmission finds ilega.! is equally necessary. The Commission gives no weight to the problems of "unscrambling" commingled assets and to the perbnps insuperable practical diffculties of restoring us competitive entities these relatively small companies whose operations have for nearly ten years been full,; Integrated Into Foremost' s business. ::131 concern is not with possible hardship to Foremost but mther with whether it is possible as a practical matter now to reestablish these companies as independent competitors. I ).

1098 FEDERAL TRADE COMMISSIQX DECISIONS Dissenting Opinion 60 An order limited to such divestiture, however, is aimed at undoing the effects of past acquisitions; it docs not prevent for the future iho continuation of the merger trend which has so radically altered the structure of this industry. If the Commission s prime concern should be, as I believe, wit.h increasing concentration f1ud the elimination of the rapidly dwindling number of independent companies still left in the industry, divestiture alone win not suffce. Xor is divestiture the only kind of relief which the Commission may order in a Section 7 easc. See Unital States v. dupont 366 U.S. 316, 328 , note 9. Although a court may be l'eluctallt to enter an order requiring cont.inuing future super isioll m er industry practices and conditions an administrative agency is not restrained by such inhibitions, and indeed the exercise of cont.inuing administ.ratiye oversight is one of this Commission s primary responsibilities. In a.addition to the divestitures indicated, the nlost effective form of relief here would be to impose on respondent the specific obligation to submit any future acquisitions to the Commission for scrutiny and approval before consummation. Such a requirement is particularly appropriate in a case like this, where the paramount public interest and indeed the express ob:iective of the statute, is the attainment and preservation for the future of healthy competitive conditions. Congress has end01ycd the Commission "ith "",'ide discretion in its choice of a re.l1edy deemed adequate to cope with the unlawful practices. Jacob Siegel 00. v. Fedem-l I'm-de Oommission 327 U. S. 608, 611; and see Fedeml I'm-de Oommission v. Rnberoid 00. 343 U. S. 470; Federal J'1'ade OOTJ11nUsio' v. i'\rrtlonal Lead 00. 3521 S, 419 , 4-28- Congress expected t.he Commission to exercise a special competence in formulating remedies to deal ,\':ith problerns :in the general sphere of competitive practices. Rnberoid 00., supm 343 U.S. at 473. And in lny judgmcnt, the public interest would best be se.rvecl here by an order looking primarily to the future.

.also question whether the IJractical problems of divestiture have been fully considered in the conditions which the Commission imposes upon the divestiture of Golden State and Philadelphia Dairy. Certainly the Commission will not permit the sale of these companies to au even iarger dairy company since they are already among the leaders of the industry. -At the same time, the likelihood that they could be sold to a smaller company or to one in an unrelated inrlustry seems highly remote. As a practical matter, therefore, it would seem to me that their restoration as effective independent competitors might most practicall;!' be accomplisherl through a distrihl1tton of their stock to Foremost's stoclrholden;, along the lines of the relief ordered in the dttPont case. FOREMOST DAIRIES INC. 1099 944 Filml Order FINAL ORDER * This matter having come on to be heard upon the cross-appeals of respondent and counsel in support of the complaint from the hearing examiner s initial decision fied December 9 , 1960, including the briefs and oral arguments of counsel; and The Commission having rendered its decision denying the appeal of respondent and granting in part and denying in part the appeal of counsel in support 01 the complaint, and directing modification 01 the initial decision:

It is ordered Tha,t the hearing examiner s illitlal decision be modified by striking therefrom the findings beginning on page 060 with the words "Respondent was in competition:! and ending on pa,ge 970 with the words "another 'independent''' and substituting therefor the findings embodied in the accompanying opinion beginning on page 1086 with the 'words " From the facts set forth ;lbo\' " and ending on page 1089 with the words " divestiture of this concern. It i" further ordered That the initial decision be Inodified by striking therefrom the conclusion beginning on page lulu "with the words As to Philadelphia Dairies," and ending 011 p lge loin with the words was not substantial" and substituting therefor the following: Respondent was in competition ,,,ith PhDadelphia Dairy Products, Inc., in the sale of ice cream in the Brooklyn, Nmv York, area prior to its acquisition of that company. Philadelphia Dairy s estimated share of the fluid milk market in the Philadelphia area at the time 01 the merger was 9.3%, making it the thircllargest dairy in that market. that time, Philadelphia Dairy had expanded its operation so that it was processing and distributing fluid milk and allied dairy pro(Incts including ice cream, in a six state area. Respondent's expansion was such that it was operating on the perimeter of Philadelphia Dairy market, and its growth pattern clearly indicates that it would have expanded into that market in the near 1uture. By acquiring Philadelphia Dairy, respondent eliminated an actual competitor in onc area and a substantial potential competitor throughout a six-state area. In the PhiJac1elphifL area, large national daily concerns, with the attendant advantages of product and geographic cli\rersification are replacing large independent concerns, thereby eliminating them as potential competitors. The effect of this acquisition may be substantially to lessen competition in the processing a.nd distribution of fluid milk and ice cream.

*As modified, May 15, 1962.

, .

1100 FEDERAL TRADE CO::VL."iission DECISIONS J!' inal Order 60 l'L. It i8 further Oi'dered That the initial decision be modified by striking therefrom the conclusion beginning on page 102,:1 ""ith the words The following is the position" and encEng on page 1028 'iyith the words National Lead case" and substituting therefor the findings embodied in the ilecompanying opinion beginnhlg on page 1000 \\-ith the words There remains for our consideration" and ending on page 1092 with the words "on this issue must be denied.

It is further ordered That the initial decision be modified by striking therefrom the conclusion beginning on page 1034 with the \', ords In the present case " and ending on page 1035 \,ith the \\ords "should also be considered" and substituting therefor the following: The requisite adverse effect upon competition or tendency to\yard monopoly in the releva,nt.lines of commerce resulting from respondent's acquisitions is best evidenced in the following geographic rnarkets: (1) the Dallas, Texas, metropolitan area, including the City 01" Fort Worth and the surrounding Counties 01" Cooke, Conin, Dallas, Delta Denton, Ellis, Fannin, Grayson, I-Iopkins, Hunt Johnson, ICaufman Lflh1llr, Parker, Hockwall and Terrant; (2) the metropolitrU1 area in and around the City 'of I-Iouston, Texas; (3) the metropolitan area in and around the City of Abilene, Texas; (4) the metropolitau area in ,md around the City of San Antonio, Texas; (5) the Alameda-Contra Costa: California, metropolitan area, including the Cities of Oakland Berkeley and Alameda; (6) the San Francisco, California, metropolitan area; (7) the San "'Iateo, California, metropolitan area; (8) the Santa Clara, California, metropolitan area; (9) the Sioux Falls, South Dakota, metropolitan area; (10) the metropolitan areas of Bristol and 4.ppaJachia, Virginia, and ICingsport and Johnson City, Tennessee; (11) the Island of Oahn, Hawaii, including the IIonolu1u metropol- Ha.n area; (12) the metropolitan area in and around the City of Philadelphia, Pcnnsylyania; and (13) the metropolitan area in and around Brooklyn, K ew York.

It is further ordered That the initial decision be modified by striking therefrom the conclusion beginning on page 1040 with the ,words Considering first the acquisition of Philadelphia Dairy Products; and ending on page 104-3 with t.he words "Section 7 of the Clayton Act" and substituting therefor tha.t portion of the accompanying opinion beginning on page 1085 with the words "The hearing examiner ruled" nel en(ling on page 1086 with t.he \"Words "Philadelphia Dairy Products, Inc.

It is further ordered That the initial decision be modified by striking therefrom the conclusion beginning on page 1040 \with the words "Considera.tion has been given:' and ending on page 1047 with the words , , FOREMOST DAIRIES , INC. 1101 044 Final Orde.r .secon(l or Jate.r acquisition and substituting therefor that portion of the accompanying opinion beginning on page 1081 with the ,yards Counsel a.lso argue" a.nd ending on page 108::1 wit.h the worels " this point is rej eded.

It is .huther onZe'l'cd That the order contained in the. initial decision , and it hereby is, modified to read as follo1Vs: It is onleTcd That respondent, Foremost Dairies, Inc. t corporatioll\ and its offcers: directors, agents reprm,entatives and employees shall, within t.welve months from the date of service upon it of this order, divest itself absolutely, in good faith, of all stock, assets, properties, rights a.nd privileges, tangible or intangible, including, but not limited to all contract rights, plants, machinery, pquipment, trade names, traclernarks, and good will acquired by Foremost Dairies, Inc. ns a re,sult of the acquisition of the stock share capital, or assets of eac,h of the follo,,'ing named corporations: Banner DRiries, Inc., Abi- 1eno, Texas; Phenix Dairy, IIouston, Texas; Tenne,ssee Dairies, Inc. Danos, Texas; Southern Maid, Inc., Bristol, Virgiuia; The vVeleh Milk Company: ,Ve1ch, 'Yest Virginia; Crescent Creamery Co. , Sioux Falls Sonth Dakota; MoanahUt Dairy, Ltd., and Rico Ice Cream Company, Ltd., IIonolulu, lIawaii: Golden State Company, Ltd.: San Francisco Cahfornia; and Philadelphia Dairy Products, Inc., Philadelphia Pennsylvania, together with all plants, machinery, buildings, improvements, equipment, and other property of what.ever description that has been added to or placed on the premises of each of the former above-named corporations by respondent, as may be necessary to restore each of them as a going concern and to establish each of them as an effective competitor in substantially all the same basic lines of commerce in "which each of the respective acquired corporations was engaged at the time of its acquisition.

Pending divestiture, Foremost shall not make any changes in any of the above-mentioned plants, machinery, buildings, equipment, or other property of ,vhat.ever description, which shall impair their present rated capacity for the production of their respective dairy product.s, or their market value, unless said capacity or value is restored prior to divestiture.

Respondent in such divestiture shan not sen or transfer, directly or indirectly, any of the stock, assets, properties, rights, or privileges tangible or intangible, acquired, added, modified or placed on the premises of any of the above-named concerns by respondent, to anyone who at the time of divestiture, is a stockholder of respondent, or to anyone who is or, at the time of acquisition, was an offcer, director, representa- , 1102 FEDERAL TRADE COMMISSION DECISIOKS Sylla!ms 60 F.

tive, employee, or agent of, or otherwise, directly or indirectly, connected with, or under the control or influence of, respondent. It is further ordered That, in said divestiture, respondent shall not sell or transfer, directly or indirectly, any of the stock, assets, properties, rights or privileges, tangible or intangible, to any corporation or to anyone, who, at the time of said divestiture, is an offcer, director employee or agent of such corporation, which, at the time of such sale or transfer, is a substantial factor in the dairy products industry, if the effect of such sale or transfer might bc to substantially lessen competition or tend to create a monopoly or oligopoly in any onc of the said dairy products, in any section of the country. It is furthe,' ordered That the charges contained in paragraph 7 of the complaint be, and they hereby are, dismissed. It is furthe" ol'dated That respondent, Foremost Dairies, Inc., shall within three months from the date of service upon it of this order subnlit in writing for the consideration and approval of the Federal Trade Commission, its pia.n for carrying out the provisions of this order, such plan to include the date \within \which full compliance may be effected.

I t is fU1'thej' ordel'ed That the hea.ring examiner s initial decision as modified and supplemented by the accompanying opinion, be, and it hereby is, adopted as the decision of the Commission. Commissioner Elman dissenting in part and Commissioner JIac- Intyre not participating.