Okc Corp. and Oklahoma Land and Cattle Company

Text (OCR of the scan at left; may contain errors)

form of his compliance with this order.

OKC CORP. AND OKLAHOMA LAND AND CATTLE COMPANY ORDER, OPINION, ETC., IN REGARD TO THE ALLEGED VIOLATION OF SEC. 7 OF THE CLAYTON ACT AND THE FEDERAL TRADE COMMISSION ACT Docket 8802. Complaint, Oct. 17, 1969—Decision, Oct. 21, 1970 Order requiring a Dallas, Tex., producer of portland cement, asphalts, premium and regular type gasolines, heating oils and various other petroleum products to divest in its entirety a large New Orleans, La., purchaser of cement and seller of ready mixed concrete, and not to acquire for the next 10 years without prior approval by the Federal Trade Commission any corporate (1) producer or seller of ready mixed concrete or concrete products within respondent’s present or future marketing area for portland cement or (2) purchaser of more than 10,000 barrels of portland cement in any of the five years preceding the merger. The complaint against the second respondent was dismissed. ComMPLAINT The Federal Trade Commission having reason to believe that OKC Corp. (“OKC”), a corporation, acting in combination and concert with Oklahoma Land and Cattle Company (“Oklahoma”), a corpoa a em erery Lore 1342 Complaint ration, has acquired or is attempting to acquire control of Jahncke Service, Incorporated (“Jahncke”), by obtaining irrevocable proxies and by purchasing voting common stock of Jahncke; that OKC plans to acquire the entire business of Jahncke; that this acquisition violates Section 7 of the Clayton Act, as amended (15 U.S.C. § 18); and that this acquisition, the combination and concerted action on the part of OKC and Oklahoma and OKC’s plan to acquire the entire business of Jahncke violate Section 5 of the Federal Trade Commission Act, as amended, (15 U.S.C. § 45); and that a proceeding in respect thereof would be in the public interest, therefore, pursuant to Section 11 of the Clayton Act, as amended (15 U.S.C. §21), and Section 5 of the Federal Trade Commission Act (15 U.S.C. § 45) issues its complaint, stating its charges in that respect as follows:

I. Definitions 1. For the purpose of this complaint the following definitions shall apply: SO a. “Portland cement”—Portland cement includes Types I through V of portland cement as specified by the American Society for Testing Materials. Neither masonry nor white cement is included. b. “Ready mixed concrete”—Ready mixed concrete includes all portland cement concrete manufactured and delivered to a purchaser in a plastic and unhardened state. Ready mixed concrete includes central mixed concrete, shrink mixed concrete and transit mixed concrete.

c. “Construction Aggregates”—Construction aggregates are materials, particles or grains in prescribed gradation or size range such as sand, gravel, crushed stone and blast furnace slag. d. “Shells”—Shells are oyster and/or clam shells commercially dredged and sold.

e. “Wew Orleans area”—consists of the Parishes of Jefferson, Orleans, St. Bernard and St. Tammany, Louisiana. This area corresponds to the Standard Metropolitan Statistical Area (SMSA) as defined by the Bureau of the Budget.

II. Corporations Involved A. OKC Corp.

2. OKC Corp. (“OKC”) is a corporation organized and existing under the laws of the State of Delaware, with its principal office located at 1949 North Stemmons Freeway, Dallas, Texas. It was incorporated March 12, 1959, under the name Oklahoma Cement Company. The present name was adopted on January 30, 1967. Among Complaint U7 ET. C.

its incorporators were Kenneth S. Adams, Sr., the George A. Fuller Company, Inc., Central States Investment Company and Coastal States Gas Producing Company.

3. OKC’s principal products are portland cement, asphalts, premium and regular type gasolines, heating oils and various other petroleum products. From a two (2) million barrel annual capacity plant located at Pryor, Oklahoma and terminals located at Woodward and Oklahoma City, Oklahoma, OKC manufactures and sells portland cement throughout northern Oklahoma, southwestern Kansas, southern Missouri, northern Texas and northern Arkansas. From a 1.7 million barrel annual capacity plant at New Orleans, Louisiana, operating as the Louisiana Cement Company Division of OKC, portland cement is manufactured and sold in eastern Texas, Louisiana, western Mississippi, western Florida and the southern Gulf Coast area. OKC’s principal classes of customers for its portland cement are ready mixed concrete companies, oil well servicing companies and public works projects, and of these, ready mixed concrete companies purchase the largest amount of portland cement from each of OKC’s plants.

4. For the fiscal year ending September 30, 1968, OKC’s total production of portland cement amounted to 3,400,000 barrels. During this same fiscal year, OKC’s portland cement producing plants operated at an average of 91 percent of rated capacity as compared with 85 ‘percent of rated capacity during fiscal year 1967. Limestone deposits are owned and used by OKC’s Pryor, Oklahoma plant as the basic raw material in the manufacture of portland cement. However, limestone is not available at OKC’s New Orleans, Louisiana plant and shells are used to replace limestone as the basic raw material.

5. The New Orleans area is one of the principal markets for portland cement manufactured at OKC’s New Orleans plant. Since it completed the New Orleans plant in July 1964, OKC has become the third largest supplier of portland cement to the New Orleans area. In 1968, this plant shipped 1,548,086 barrels of portland cement . valued at $5,659,802. Of this total, 966,916 barrels or 62 percent, valued at $3,776,412 were shipped within the New Orleans area. Its 1968 shipments accounted for approximately 23 percent of the total shipments of portland cement. made into this marketing area. OKC also purchases large amounts of shells for use as a basic raw material in the manufacture of portland cement at its New Orleans, Louisiana, plant. In 1968, OKC purchased 420,197 tons of shells valued at $653,514. Its 1968 purchases of shells amounted to approxi- OKC CORP. AND OKLAHOMA LAND AND CATTLE CO. 1345 1342 Complaint mately 7.5 percent of shells sold within 100 miles of New Orleans. OKC’s largest supplier of shells is Jahncke. 6. A subsidiary of OKC, Okmulgee Refining Co., Inc., operates at Okmulgee, Oklahoma, a petroleum refinery, purchased from Phillips Petroleum Company (“Phillips”) in 1966.

7. For the fiscal year ending September 30, 1968, OKC had net sales of $39,203,178 net income of $2,319,655, and total assets of $41,299,177.

8. At all times relevant herein, OKC was, and is now, a corporation engaged in commerce, as “commerce” is defined in the Federal Trade Commission Act and the Clayton Act. . B. Oklahoma Land and Cattle Company 9. Oklahoma Land and Cattle Company (“Oklahoma”), chartered in 1960, is a corporation organized and existing under the laws of the State of Oklahoma with its principal office located in Bartlesville, Oklahoma. The company is engaged in the ranching business and owns and operates six large ranches which stock, breed and sell cattle. Oklahoma sells most of its cattle to livestock commission companies and meat packers in Kansas and Missouri. Oklahoma also owns, for investment, capital stock in some twelve publicly-traded corporations amounting in value to between $3,000,000 and $4,000,000. Such stock is purchased on the open market.at market trading prices, and in all but one instance represents less than 2 percent of the outstanding shares of stock of each of the corporations in which Oklahoma has invested.

10. For the year ended December 31, 1968, Oklahoma had current assets of $3,041,746, current liabilities of $17,300 and total assets of $6,208,012. It had a consolidated net loss of $10,542 as a result of an operating loss of $295,824 (cattle) and a non-operating net income of $285,281 (stock investment).

11. Oklahoma is the sole, and wholly owned subsidiary of The Pipe Investment Company (“Pipe”), also of Bartlesville, Oklahoma. Both companies have the same president. Pipe, incorporated in the State of Texas on March 21, 1951, is primarily engaged in the real estate business in the States of Oklahoma, Texas, California and Florida, and owns oil properties in Texas and Oklahoma. It is through this company that the Kenneth S. Adams, Sr., family control Oklahoma.

12. At all times relevant herein, Oklahoma was, and is now, a corporation engaged in commerce, as “commerce” is defined in the Federal Trade Commission Act and the Clayton Act. 1346 —«;j. FEDERAL TRADE COMMISSION DECISIONS Complaint TT ¥F.T.C.

C. Jahneke Service, Incorporated 13. Jahncke Service, Incorporated (“Jahncke”), is a corporation organized and existing under the laws of the State of Louisiana with its principal office located at 814 Howard Avenue, New Orleans, Louisiana.

14. Jahncke’s business operations include marine hydraulic dredging, the dredging and sale of shells, the production and sale of construction aggregates, concrete pipe and other concrete products, building materials, and ready mixed concrete. 15. Jahncke has been engaged in the production and sale of ready mixed concrete in the New Orleans area for over thirty years, and operates seven ready mixed concrete plants in that area. It is the largest producer of. ready mixcd concrete in the New Orleans area having sold over 255,000 cubic yards of ready mixed concrete in 1968. During the same year it purchased over 400,000 barrels of portland cement from 6 suppliers, including OKC. Its portland cement consumption in 1968 amounted to 10 percent of the total shipments into the New Orleans area.

16. Jahncke is also one of the leading producers of construction aggregates in the New Orleans area, and is one of the leading producers of shells, a basic raw material used in the manufacture of portland cement. In 1968, it produced and sold approximately 1,444,000 cubic yards of shells and 784,988 tons of aggregates. Its 1968 sales of shells accounted for approximately 22 percent of the total sales of shells within 100 miles of New Orleans. 1%. As well as purchasing portland cement in interstate commerce, Jahncke’s shell and hydraulic dredging operations are carried out in the Gulf of Mexico and within and among various Gulf Coast States.

18. For the year ended December 31, 1968, Jahncke had net sales of $11,476,642, total revenues of $19,144,696 and net income of $177,- 231. Current assets were $6,689,492 and current liabilities were $2,- 008,287.

19. At all times revelant herein, Jahncke was, and is now, engaged in commerce, as “commerce” is defined in the Federal Trade Commission Act and the Clayton Act.

D. Relationship between OKC and Oklahoma 20. Oklahoma and Kenneth S. Adams, Sr., have a close ownership and business relationship with OKC. Oklahoma is controlled through its parent company, The Pipe Investment Company, which in turn is controlled by the Kenneth S. Adams, Sr., family. Oklahoma di- OKC CORP. AND OKLAHOMA LAND AND CATTLE co. 1347 1342 Complaint rectly owns 15,000 shares of OKC common stock. Kenneth S. Adams, Sr., was a founder of OKC and was a director of OKC from its founding in 1959 until he resigned in April 1967. Kenneth S. Adams, Sr., is a substantial stockholder in OKC. The Adams Trust, Central States Investment Company, organized for the benefit of Dorothy Glynn Adams, wife of Kenneth S. Adams, Sr., and their five children, holds a very substantial amount of OKC stock. Central States Investment Company also owned $1 million principal amount of OKC 51% percent convertible debentures due January 1, 1978. Kenneth S. Adams, Jr., is also a substantial stockholder of OKC. Dorothy Glynn Adams is also a direct benéficial owner of OKC stock. IIT. Conspiracy and Acquisition 21. In September 1968, the board of directors of Jahncke voted against accepting a proposal of OKC to acquire Jahncke. Subsequent to September 1968, and continuing to the present time the said respondents hereinbefore named and described, and each of them, have by means of agreements and understandings, combined and conspired and have united in and pursued a planned common course of action, reaching beyond State boundaries, by various means and methods, between and among themselves and others not named herein, to acquire control of Jahncke, and thereby to hinder, restrain, suppress and eliminate competition in the production and sale of portland cement, shells, ready mixed concrete and construction aggregates.

22. Pursuant to, and in furtherance and effectuation of the aforesaid agreements, understandings and planned common course of action. respondents have engaged in and performed and are now engaging in and performing the following acts and practices among others:

(1) Officers and directors of OKC have directly, or indirectly through duly authorized agents and representatives, solicited shareholders of Jahncke for the purpose of purchasing Jahncke stock held by them or urging them to assign their Jahncke voting stock proxies to Oklahoma.

(2) Officers and directors of OKC have directly, or indirectly through duly authorized agents and representatives, negotiated agreements with various major shareholders of Jahncke whereby irrevocable voting stock proxies have been assigned to Oklahoma in consideration for future, but presently nonexisting, OKC debentures and unissued OKC common stock. Such agreements were executed by certain Jahncke shareholders in New Orleans, Louisiana and 1348 FEDERAL TRADE. COMMISSION. DECISIONS... Complaint TT ETC.

thereafter sent to and executed. by an officer of Oklahoma at Bartlesville, Oklahoma. OKC is not a signatory to such agreements. (3) Officers and directors of OKC have directly, or indirectly through duly authorized agents and representatives, enlisted the aid of present and former shareholders of Jahncke and brokerage firms to arrange the purchase of Jahncke stock at premium prices. Such stock, when purchased, has been placed in the name of Oklahoma or a common representative for Oklahoma and OKC. (4) Officers and directors of OKC have directly, or indirectly through duly authorized agents and representatives, advised a present officer of Jahncke that he would be retained in his current position, after control was obtained, only upon condition that he sell his holdings of Jahncke stock to, or grant proxies to, OKC and/or Oklahoma.

(5) OKC has directly, or indirectly provided funds for the purchase of Jahncke stock at excessive prices in furtherance of the continuing plan to acquire control of Jahncke. (6) Oklahoma, which had a consolidated net loss for each of the calendar years 1967 and 1968, and which had hitherto owned less than two percent of the issued and outstanding stock of each corporation in which it had invested, obtained bank loans totaling over three million dollars, which together with other funds have been and are being used to purchase substantial amounts of Jahncke stock.

(7) Oklahoma, through its common representative with OKC, purchased several thousand shares of Jahncke stock for a price in excess of the market price for such stock, whereas it had consistently paid market prices for shares of stock of other corporations in which it has invested.

(8) Subsequent to the above acts and practices, OKC for the first time made public, by filing a prospectus with the Securities & Exchange Commission and by press releases and letters sent to Jahncke: shareholders, its plan to acquire the business of Jahncke. IV. Nature of Trade and Commerce A. Portland Cement 23. Portland cement is a material which in the presence of water: binds aggregates, such as sand and gravel, into concrete. Portland cement is an essential ingredient in the manufacture of concrete and it represents about 60 percent of the material cost and over one-third’ of the total cost of manufacturing, distributing and selling ready mixed concrete, the only form in which concrete is sold as a com-- VAY ULE: SAAN VALLI 1b 4AAN Usha ed UU saute 1342 Complaint modity. Finished portland cement is a perishable product if ex- ‘posed to moisture. It is sold primarily in bulk, with a small portion ‘sold in bags, and none being sold in barrels, the latter term simply representing the common unit of measure. It is a homogeneous product having little utility alone which is manufactured to stand- ‘ard and rigid specifications and, in general, the product of one plant is physically substitutable for the product of another. 24. The portland cement industry in the United States is sub- ‘stantial. In 1968, there were about 50 portland cement companies in the United States operating approximately 184 plants. Total shipments of portland cement in that year amounted to approximately -407 million barrels, valued at about $1.3 billion. There are no cement ‘companies serving the entire United States, but the larger companies, through a network of geographically scattered plants, cover maior portions of the country. The effective marketing area of a cement plant is geographically limited by high shipping costs in relation to product value. Markets for portland cement are therefore ‘primarily local or regional rather than national in scope, and pro- -duction plants are widely scattered to serve the available markets. Availability of raw materials, such as limestone or shells, is a significant factor in the location of portland cement plants. 25. Portland cement manufacturers sell their portland cement to consumers such as ready mixed concrete companies, concrete product manufacturers, contractors and building material dealers. On a na- ‘tional basis, approximately 60 percent of all portland cement is shipped to firms engaged in the production and sale of ready mixed -concrete. However, in heavily populated metropolitan areas, the per- -centage of portland cement consumed by ready mixed concrete companies is generally higher. In general, portland cement consumers have not been integrated or affiliated with portland cement manufacturers. Each has operated independently on a vendor-vendee . basis.

26. In recent years, there has been a significant trend of mergers and acquisitions by which ready mixed concrete companies in major _ metropolitan markets in various portions of the United States have ‘become integrated with portland cement companies. Since 1959, there have been at least 40 such acquisitions.

27. Each vertical merger or acquisition which occurs in the portland cement industry potentially forecloses competing portland cement manufacturers from a segment of the market otherwise open ‘to them and places great pressure on competing manufacturers like- ‘wise to acquire portland cement consumers in order to protect their -1350 _ ‘FEDERAL TRADE COMMISSION DECISIONS Complaint TW BLL.

markets. Thus, each such vertical acquisition may form an integral part of a chain reaction of such acquisitions—contributing both to the share of the market already foreclosed, and to the impetus for further such acquisitions.

B. Shells 28. Shells dredged from the water bottoms surrounding New Orleans are a basic raw material used in the manufacture of portland cement in that area. Portland cement plants located in areas adjacent to the Gulf of Mexico are substantial consumers of shells. Other purchasers of shells include aluminum companies, road building and pipeline contractors, offshore drilling companies, asphalt producers and concrete producers.

29. There are only four principal producers and sellers of shells in the New Orleans area, including Jahncke. Competition in the sale of shells is based principally upon price. As in the portland cement industry, freight costs, which vary according to water, rail and truck transportation, and location of competitors, are important factors limiting the geographic area within which a shell producer is able to compete. Due to these factors and the unique locations of the product, shell producers in the New Orleans area generally do not market shells produced in this area further than an outer limit of one hundred miles from New Orleans.

30. The shell dredging industry surrounding New Orleans is substantial. It is characterized by high entry barriers from the standpoint of cost of entry and time required to procure the necessary, custom-made equipment.

31. Each vertical merger or acquisition which occurs in the shell dredging industry surrounding the New Orleans area potentially forecloses competing shell dredgers from a segment. of the market otherwise open to them, and may cause great pressure on other shell consumers likewise to acquire shell producers in order to protect their sources of supply, or on other shell producers likewise to acquire sheli consumers in order to protect their markets. Thus, each such vertical acquisition may form an integral part of a chain reaction of such acquisitions contributing both to the share of the market already foreclosed, and to the impetus for further such acquisitions. C. Ready Mixed Concrete 32. Concrete is made by mixing portland cement, and sand and gravel, or other aggregate, with water so as to cause the cement to set and bind the entire mass into a hard product resembling stone. The characteristics of the finished product, particularly its strength, are affected by the proportion of cement used in the mixture. OKC CORP: AND OKLAHOMA LAND AND CATTLE co. 1351 1342... Complaint ‘ 83. Ready. mixed concrete production constitutes a substantial, specialized manufacturing industry. There are over 4,000 establishments engaged in the production of ready mixed concrete in the United States which in 1967 produced approximately 167 million cubic yards of concrete valued in excess of $2 billion. Most ready mixed concrete producers are relatively small, single plant operators who compete in limited geographic areas, rarely reaching beyond a single metropolitan area. Size is usually determined by the number of plants operated rather than the size of a particular plant. The additional plants are strategically located so as to serve the various parts of the local area conveniently, quickly and economically. 34. The effective marketing area for the sale of ready mixed conerete is limited by such factors as the perishability of the product, time-placement requirements, licensing restrictions, transportation costs, delivery schedules and service requirements. Markets for ready mixed concrete are centered in metropolitan areas where the concentration of population and construction cause the greatest demand for this product.

D. Construction Aggregates 35. Construction aggregates are materials with which portland cement is combined in the presence of water to form concrete. They, like portland cement, are an essential ingredient in the manufacture of concrete and represent an appreciable amount, between 25 percent to 40 percent of the raw material costs of manufacture of ready mixed concrete. Aggregates are also used by themselves as bases and subbases for roads and as fill material in construction projects and are a basic construction raw material. Concrete producers are substantial consumers of aggregates. Other purchasers of construction aggregates include concrete product manufacturers, read building contractors and construction contractors. 36. Construction aggregate production constitutes a substantial, specialized industry. There are over 6,000 plants engaged in the production of construction aggregates in the United States which in 1967 produced approximately 1,400,000,000 tons of construction aggregates valued in excess of $1.7 billion. 37. Low value in relation to shipping costs generally prevents construction aggregates from being shipped over long distances. The effective marketing area for construction aggregates is also limited by the location of deposit sites, location of competitors and the location of areas of. demand. Markets for construction aggregates are centered in metropolitan areas where the concentration of population and construction cause the greatest demand for aggregates. Jahncke Complaint V7 FTC.

is one of the largest producers of construction aggregates in the New Orleans area, and although it sells such aggregates in a 22 parish area contiguous to New Orleans, at least 75 percent of its sales are made in the New Orleans area.

38. A merger or acquisition which occurs between a portland cement producer and a construction aggregates producer may create a decisive competitive advantage in the surviving company in competition with other non-aligned portland cement producers and/or construction aggregates producers. A merger‘or acquisition between a portland cement producer and a producer of construction aggregates, which is likewise a major producer of ready mixed concrete, would not only create the anticompetitive situations referred to in Paragraph 27 above, but may also impose an overwhelming competitive advantage over competing non-integrated ready mixed concrete companies, thereby compelling them to seek vertical acquisitions with other portland cement or construction aggregate producers.

V. Effects of the Conspiracy and Acquisition 39. The effects of the conspiracy and acquisition by respondents of the substantial amount of the voting proxies and common stock of Jahncke, and the plan to acquire the business of Jahncke may have the tendency to hinder, prevent and restrain competition, and both in themselves and by aggravating the trend of vertical mergers and acquisitions, may be substantially to lessen competition or to tend to create a monopoly in the manufacture and sale of (1) portland cement, (2) ready mixed concrete, (3) shells, and (4) construction aggregates in the United States as a whole and various parts thereof, including the New Orleans area, and the one hundred mile area within a radius of New Orleans, in the following ways, among others:

a. OKC’s competitors have been and/or may be foreclosed from a substantial segment of the market for portland cement. b. Jahncke’s competitors have been and/or may be foreclosed from a substantial segment of the market for shells. c. The ability of OKC’s non-integrated competitors effectively to compete in the sale of portland cement, shells, construction aggregates and/or ready mixed concrete has been and/or may be substantially impaired.

d. The ability of Jahncke’s non-integrated competitors effectively to compete in the sale of ready mixed concrete, and/or shells has been and/or may be substantially impaired. OKC CORP. AND OKLAHOMA LAND AND CATTLE CO. 1353 1342 Complaint e. Concentration in the production and sale of Shells, already oligopolistic in nature, has been and/or may be increased. f. The entry of new portland cement, shells, construction ageregates and/or ready mixed concrete competitors may have been and/ or may be inhibited or prevented.

g. Present competitors in the sale of portland cement, shells, construction aggregates and/or ready mixed concrete have been and/or may be compelled to withdraw or diminish their competitive efforts. h. OKC’s and/or Jahncke’s non-integrated competitors have been and/or may be pressured into making vertical mergers or acquisitions.

i, The production and sale of ready mixed concrete, usually a decentralized, locally controlled, small business industry, may become concentrated in the hands of a relatively few manufacturers of portland cement.

j. Jahncke’s ability and viability to compete in the sale of construction aggregates, ready mixed concrete and shells has been and/ or may be hindered, restrained or suppressed by dissatisfaction and uncertainty of employment by its key personnel, and/or by customer refusal to enter into contracts with a management which is and/or may be subject to abrupt change.

VI. Violations Charged 40. OKC’s and Oklahoma’s acquisition of the voting proxies and shares of the common stock of Jahncke constitute a violation of Section 7 of the Clayton Act, as amended, and Section 5 of the Federal Trade Commission Act.

41. OKC’s plan to acquire the business of Jahncke and its acts and practices in connection therewith constitute a violation of Section 5 of the Federal Trade Commission Act. 42. The acts, practices and courses of conduct engaged in, followed and pursued by respondents, and the combination, conspiracy, agreement or common understanding entered into or reached between and among the respondents and others not parties hereto, and the acts and practices and methods, as hereinbefore alleged, are all singularly and collectively unfair and to the prejudice of the public policy as enunciated in the Clayton Act, as amended, specifically Section 7 thereof, because of their dangerous tendency and probability to cause or bring about the effects on competition and hindrances and restraints on trade and commerce as heretofore alleged, and thereby constitute unfair methods of competition and unfair acts and practices in commerce within the meaning of Section 5 of the Federal Trade Commission Act, as amended.

1354. _ FEDERAL TRADE COMMISSION DECISIONS Initial Decision V7 ETC.

Mr. Edward H. McGrail and Mr. Robert J. Fulgency supporting the complaint.

Sullivan & Cromwell, New York, N.Y., by Mr. John F. Arning, Mr. Robert G. Sugarman, and Mr. Charles P. Russ, III, for respondent OKC Corp.; and a Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, La., by Mr. Ewell P. Walther, Jr., for respondent Oklahoma Land and Cattle Company.

Inirrat Decision By Epwarp Creer, Hearing EXsAMINnER SEPTEMBER 3, 1970 PRELIMINARY STATEMENT The Federal Trade Commission on October 17, 1969, issued its complaint in this proceeding charging that OKC Corp. (hereinafter referred to as “OKC”), a corporation, acting in combination and concert with Oklahoma Land and Cattle Company (hereinafter referred to as “Oklahoma”), a corporation, has acquired or is attempting to acquire control of Jahncke Service, Incorporated (hereinafter referred to as “Jahncke”), by obtaining irrevocable proxies and by purchasing voting common stock of Jahncke, that OKC plans to acquire the entire business of Jahncke; that the acquisition violates Section 7 of the Clayton Act, as amended (15 U.S.C. Sec. 18); and that the acquisition, the combination and concerted action on the part of OKC and Oklahoma, and OKC’s plan to acquire the entire business of Jahncke violates Section 5 of the Federal Trade Commission Act, as amended (15 U.S.C. Sec. 45).

The complaint alleges that the acquisition and conspiracy may have serious anticompetitive effects in the production and sale of portland cement, ready-mixed concrete, shells, and construction aggregates. It is alleged that such effects may occur in the United States as a whole, and various parts thereof, including the New Orleans area, and the area within a 100 mile radius of New Orleans. It is alleged that among the anticompetitive effects which may occur, are the following:

(1) OKC’s competitors have been and/or may be foreclosed from a substantial segment of the market for portland cement; (2) Jahneke’s competitors have been and/or may be foreclosed from a substantial segment of the market for shells; (8) The ability of OKC’s nonintegrated competitors effectively to compete in the sale of portland cement, shells, construction aggregates and/or readymixed concrete has been and/or may be substantially impaired; OKC CORP. AND OKLAHOMA LAND AND CATTLE CO. 1355 1342 Initial Decision (4) The ability of Jahncke’s nonintegrated competitors effectively to compete in the sale of ready-mixed concrete, and/or shells has been and/or may be substantially impaired; (5) Concentration in the production and sale of shells, already oligopolistic in nature, has been and/or may be increased; (6) The entry of new portland cement, shells, construction aggregates and/or ready-mixed concrete competitors may have been and/or may be inhibited or prevented ; (7) Present competitors in the sale of portland cement, shells, construction aggregates and/or ready-mixed concrete have been and/or may be compelled to withdraw or diminish their competitive efforts; (8) OKC’s and/or Jahncke’s nonintegrated competitors have been and/or may be pressured into making vertical mergers or acquisitions; (9) The production and sale of ready-mixed concrete, usually a decentralized, locally controlled, small business industry, may become concentrated in the hands of a relatively few manufacturers of portland cement; (10) Jahncke’s ability and viability to compete in the sale of construction aggregates, ready-mixed concrete and shells has been and/or may be hindered, restrained or suppressed by dissatisfaction and uncertainty of employment by its key personnel, and/or by customer refusal to enter into contracts with a managemont which is and/or may be subject to abrupt change. Answers were filed by respondents on December 1 and 2, 1969, which denied violating the statutes as charged and denied most of the allegations of the complaint.

Five prehearing conferences were held in this matter between December 10, 1969, and May 15, 1970, at which general preliminary matters were resolved, including clarification of issues through explanation of allegations and additional admissions of allegations. Agreements were reached regarding various matters and exhibits were received in evidence. Respondents secured information from portland cement producers, shell producers, and limestone producers by using pretrial discovery procedures.

Any motions not heretofore or herein specifically ruled upon, either directly or by the necessary effect of the conclusions in this initial decision, are hereby denied.

The allegations concerning aggregates were withdrawn by counsel supporting the complaint because Jahncke sold its major aggregates operation in October 1969.

"Hearings in this matter began in New Orleans. Louisiana, on June 9, 1970, closed on July 27, 1970, in Washington, D.C. With the consent of the parties, official notice may be taken of “Econonvic Report on Mergers & Vertical Integration in the Cement Industry.” 9 staff report to the Federal Trade Commission. 1356 ' " FEDERAL TRADE COMMISSION DECISIONS Initial Decision VW ETC.

The abbreviations used herein are:

Comp.—Complaint.

Ans.—Answer to complaint.

CX—Commission Exhibit.

RX—Respondents Exhibit.

Tr—Transcript of testimony and of prehearing conferences. CPF—Counsel Supporting the Complaint’s Proposed Findings, Conclusions, and Order. Numbers used are numbers of the proposed findings. , RPF—Respondents’ Proposed Findings of Fact, Conclusions of Law and Order. Numbers used are numbers of proposed findings. RB—Respondents’ Brief. Numbers used are page numbers. RRB—Respondents’ Reply Brief and Exceptions. Numbers used are page numbers.

RRB-EX.—Exceptions (incorporated in and made a part of Respondents’ Reply Brief. Numbers used are page numbers followed by the letter “a.”

CRB—Counsel Supporting the Complaint’s Reply to Respondents’ Proposed Findings of Fact, Conclusions of Law and Brief. The numbers used are page numbers.

The terms defined in Paragraph 1 of the complaint have the same definition and meaning in this initial decision, unless. otherwise noted.

This proceeding is before the hearing examiner for final consideration upon the complaint, answers, testimony and other evidence, and proposed findings of fact and conclusions filed by counsel for respondent and by counsel supporting the complaint. Consideration has been given to the proposed findings of fact and conclusions submitted by both parties, replies thereto, briefs and oral argument and all proposed findings of fact and conclusions not hereinafter specifically found or concluded are rejected as being inaccurate or as not being necessary or material, and the hearing examiner, having considered the entire record herein, makes the following findings of fact, and conclusions drawn therefrom, and issues the following order: FINDINGS OF FACT The Respondents A. OKC Corp.

1. OKC Corp. is a Delaware corporation with its principal office located at 1949 North Stemmons Freeway, Dallas, Texas. It was incorporated March 12, 1959, under the name Oklahoma Cement. Company. The present name was adopted on January 30, 1967. Among its OKC CORP. AND OKLAHOMA LAND AND CATTLE CO. 1357 1342 Initial Decision founders were Kenneth S. Adams, Sr., the George A. Fuller Company, Inc., Central States Investment Company and Coastal States Gas Producing Company. (Ans. par. 2; Tr. 9.) 2. OKC’s principal products are portland cement, asphalts, pr emium and regular type gasolines, heating oils, and various other petroleum products. From a 2 million barrel annual capacity plant lo-. cated at Pryor, Oklahoma, and terminals located at Woodward and Oklahoma City, Oklahoma, OKC manufactures and sells portland. cement. in all of Oklahoma except the southeast and southwest. corners, southern Kansas, southern Missouri, northern Texas, the. Texas Panhandle and northern Arkansas. From a 1.7 million barrel annual capacity plant at New Orleans, Louisiana, operating as the Louisiana Cement Company Division of OKC, portland cement is. manufactured and sold in eastern Texas, Louisiana, western Mississippi, western Florida and the southern Gulf Coast area. OKC’s. principal classes of customers for its portland cement are ready mixed concrete companies, oil well servicing companies, public works: projects, lumber yards and oil field pipe coating companies, and of these, the ready-mixed companies purchase the largest amount of portland cement from each of OKC’s plants. (Ans. par. 3.) 8. For the fiscal year ending September 80, 1968, OKC’s total production of portland cement amounted to 3,400,000 barrels. During that same fiscal year, OKC’s portland cement producing plants operated at an average of 91% of rated capacity as compared with 85% of rated capacity during fiscal 1967. Limestone deposits are owned and used by OKC’s Pryor, Oklahoma plant as a basic raw material in the manufacture of portland cement. OKC’s New Orleans, Louisiana plant uses shell in place of limestone as a basic raw material. (Ans. par. 4.) 4, The New Orleans metropolitan area is one of the principal mar-. kets for portland cement manufactured at OKC’s New Orleans plant. Since it completed the New Orleans plant in July 1964, OKC has become the third largest supplier of portland cement to the New Orleans area. In 1968, this plant shipped 1,548,086 barrels of portland cement valued at $5, 659,802. Of this total, 966,916 barrels or 62%, valued at $3,776,412 were shipped within the New Orleans metropolitan area. Its 1968 shipments accounted for approximately 23% of the total shipments of portland cement made into this marketing area. OKC also purchases large amounts of shell for use as a basic raw material in the manufacture of portland cement at its New Orleans, Louisiana plant. In 1968, OKC purchased 420,197 tons of shell valued at $653,514. Its 1968 purchases of shell amounted to approximately 7% of shell sold within 100 miles of New Orleans, 467-207—73—_8T7 1358 FEDERAL. TRADE COMMISSION. DECISIONS Initial Decision V7 ETC.

OKC’s largest supplier of shell is Jahncke. (Ans. par. 5; CX 81, 82; RX 5, 6.) 5. OKC’s consolidated net sales for fiscal 1968 totaled $39,203,178 of which $10,553,437 was derived from its cement operations, the remainder being derived from its wholly owned subsidiaries. OKC’s consolidated net income for 1968 totaled $2,319,655 of which $1,649,- 612 was derived from its cement operations, the remainder being derived from its wholly owned subsidiaries. In 1968, OKC had total assets of $41,229,177 of which $33,287,781 were attributable to its cement operations, the remainder attributable to its wholly owned subsidiaries. (Ans. par. 7.) 6. At all times relevant herein, OKC was, and is now, a corporation engaged in commerce, as “commerce” is defined in the Federal Trade Commission Act and in the Clayton Act. (Ans. par. 8.) B. Oklahoma Land and Cattle Company 7. Oklahoma Land and Cattle Company chartered in 1960, is a corporation organized and existing under the Jaws of the State of Oklahoma with its principal office located in Bartlesville, Oklahoma. The company is primarily engaged in the ranching business and owns and operates six large ranches which stock, breed, and scll cattle. (Ans. par. 9.) It is also engaged in the purchase and sale of securities. (Tr. 320-21.) 8. On December 31, 1968 (Tr. 30-31), Oklahoma owned. 15,000 shares of OKC’s common stock. Since then it has acquired an additional 36,405 shares of OKC’s common stock and $3,044,800 in principal amounts of 8.59% subordinate debentures of OKC as a result of Oklahoma’s having tendered its Jahncke common and preferred stock to OKC in exchange for these OKC securities, pursuant to OKC’s May 14, 1969, exchange offer to all of the shareholders of Jahneke. (Ans. par. 9.) .

9. Oklahoma also owns, for investment, capital stock in some il other publicly traded corporations amounting in value to between $3,000,000 and $4,000,000. Such stock is purchased on the open market at market trading prices and in all but one instance represents less than 2% of the outstanding shares of stock of each of the corporations in which Oklahoma has invested. (CX 26A-H; Tr. 28; Ans. par. 9.) 10. For the year ended December 31, 1968, Oklahoma had current assets of $3,041,746, current liabilities of $17,300 and total assets of $6,208,012. It had a consolidated net loss of $10,542 as a result of an operating loss of $295,824 (cattle) and a nonoperating net income of $985.281. which was earned by stock investments. (Ans. par. 10.) VARY VU bee cat Uae ee ee 1342 Initial Decision 11. Oklahoma is the sole and wholly owned subsidiary of the Pipe Investment Company (hereinafter referred to as “Pipe”), also of Bartlesville, Oklahoma. Both companies have the same president. Pipe, incorporated in the State of Texas on March 21, 1951, is primarily engaged in the real estate business in the States of Oklahoma, Texas, California and Florida, and owns oil properties in Texas and Oklahoma. All the outstanding stock of Pipe is owned by Dorothy Glynn Adams, Steven S. Adams and W. A. Hensley, as trustee for Kenneth G. Adams, Gary C. Adams and Stephanie L. Adams. (Ans. par. 11.) 12. At all times relevant herein, Oklahoma was, and is now, a corporation engaged in commerce, as “commerce” is defined in the Federal Trade Commission Act and the Clayton Act. (CX 46A-G) The Acquired Corporation A. Jahneke Service, Incorporated 13. Jahncke Service, Incorporated, is a corporation organized and existing under the laws of the State of Louisiana, with its principal office located at 814 Howard Avenue, New Orleans, Louisiana. (Ans. par. 18.) 14. Jahncke’s business operations include marine hydraulic dredging, the dredging and sale of shell, the production and sale of construction aggregates, concrete pipe and other concrete products, building materials, and ready-mixed concrete. (Ans. par. 14.) 15. Jahncke has been engaged in the production and sale of readymixed concrete in the New Orleans area for over 30 years, and during 1967, it operated seven ready-mixed concrete plants in that area, and during 1968, five such plants. It is the largest’ producer of readymixed concrete in the New Orleans area, having sold over 255,000 cubic yards of ready-mixed concrete in 1968. During the same year, it purchased over 400,000 barrels of portland cement from six suppliers, including OKC. Its portland cement consumption in 1968 amounted to 10% of the total shipments into the New Orleans area. (Ans. par. 15; CX 58B-C, 57B, 85.) 16. Jahncke is also one of the leading producers of shell, a basic raw material used in the manufacture of portland cement. ” the New Orleans area. In 1968, Jahncke produced and sold 1.572.622 cubic yards of shell. Its 1968 sales of shell accounted for approxi. mately 23% of the total sales of shell within 100 miles of New Orleans. (Tr. 1007-08; CX 61A-B, 88A-99A.) 17. As well as purchasing portland cement in interstate commerce, Jahneke’s shell and hydraulic dredging operations are carried out Initial Decision V7 ETC.

in the Gulf of Mexico and within and among the various Gulf Coast. states. (Ans. par. 17; CX 16A, 52; Tr. 410.) 18. For the year ended December 31, 1968, Jahncke had net sales of $11,476,642, total revenues of $19,144,696 and net income of $177,231. Current assets were $6,689,492, and current liabiilties were $2,008,287. (CX 583A-M.) 19. At all times relevant herein, Jahncke was, and is now, engaged in commerce, as “commerce” is defined in the Federal Trade Commission Act and the Clayton Act. (Ans. par. 17, 19; CX 16A, 52; Tr. 410.) 20. In 1969 OKC Corp. acquired approximately 88% of the outstanding common stock and 100% of the preferred stock of J. ahneke, and assumed control of Jahncke. (CX 105, p. 3.) The Combination and the Acquisition A. OKC’s Formal Proposal to Acquire Jahncke 21. Prior to September 1968, Mr. Cloyce Box, chairman of the board of directors of OKC Corp., initiated discussion with Jahncke management for the acquisition of that. company by OKC and requested that the OKC offer be presented to the Jahncke board of directors. Such formal proposal was presented by Mr. Box to the Jahncke board of directors at their meeting held on September 23, 1968. The proposal was made that OKC would acquire Jahneke on the basis of three shares of Jahncke stock in exchange for one share of OKC stock. (H. Jahncke, Sr., Tr. 388-89; CX 48D) Mr. Donald Baxter, executive vice president in charge of finance for OKC accompanied Mr. Box at this presentation to the Jahncke board of directors. (Tr. 389, 241.) 22. The offer by OKC was turned down by the Jahncke board of directors and reflected in the minutes of a meeting of the Jahncke board of directors. (CX 48D.) Mr. Herbert Jahncke, Sr., then president and chairman of the board of Jahncke, advised Mr. Box after this meeting that the Jahncke board of directors had turned down the OKC offer. (Tr. 8390) Mr. Donald Baxter was also aware that the Jahncke board of directors had turned down the OKC offer. (Tr. 287.) 23. A month after the September 23, 1968, meeting of the Jahncke board of directors, Mr. Box made another proposal to Herbert Jahncke in private discussions. (Tr. 241, 391.) As near as Mr. Jahneke could recall, the subsequent proposal by Mr. Box would have guaranteed Jahncke stockholders a value of $15 per share in OKC stock. During these discussions, Mr. Jahncke pointed out to Mr. Box that the acquisition of Jahncke by OKC might be in viola- 1342 Initial Decision tion of the laws within the jurisdiction of the Federal Trade Commission, but Mr. Box felt that this could be “cured” by divestiture of Jahncke’s ready-mixed concrete business. This later proposal by Mr. Box was also turned down by Mr. Jahncke. (Tr. 391-92; CX 1, p. 18.) 24. After Jahncke had rejected the OKC offer (Tr. 290) there were constant off and on discussions between Mr. Box and Mr. Baxter of various other proposals to acquire Jahncke. (Tr. 287.) These discussions were of a confidential nature between “Cloyce and myself,” and reflected in “confidential” memoranda. (Tr. 291; CX 7A-B, 8A- B.) The reason for the “confidential” memoranda was that “There is no point in us spreading information of a confidential nature throughout the company’s files.” (Tr. 291.) Although Mr. Box could not recall whether he had ever received any decision on OKC’s offer to acquire Jahncke, his subsequent discussions with Mr. Jahncke as well as the memoranda, dated in December 1968, between Mr. Baxter and Mr. Box indicate that Mr. Box was well aware that OKC’s offers had been turned down by Jahncke and showed OKC’s continued determination to acquire Jahncke. (CK 7A-B; 8A-B; Tr. 243.) B. Close Kelationship Between Mr. Bow, Mr. Kenneth S. Adams, Sr., and OKC 25. On January 2, 1969, several weeks after the last memorandum from Mr. Donald Baxter to Mr. Box in which was discussed further proposals for acquiring Jahncke (CK 8A-B), Mr. Box contacted Mr. Herbert Jahncke, Sr., to determine whether Mr. Jahncke would have any objections to having Mr. Kenneth S. Adams, Sr., as a stockholder of Jahncke, and he mentioned that Mr. Adams was possibly interested in purchasing the Jahncke stock held by the Ideal Basic Industries, Inc. (CX 48F-G.) 26. Mr. Kenneth S. Adams, Sr., was the former president and chairman of the board of directors of the Phillips Petroleum Company and retired as a director of that company on April 29, 1970. (Tr. 343.) He is a long standing business and personal friend of Mr. Box.

27. Mr. Adams was one of the founders of OKC (formerly known as the Oklahoma Cement Company) and was a director of that company from its inception in 1959 until 1967. Although Mr. Adams did not personally contribute any funds to the founding of OKC, a trust company, Central States Investment Company, set up for the benefit of his family, did initially purchase over 100,000 shares of OKC stock, “. . . the same proportion that the other individuals purchased at that respective time.” (Ans. par. 20; Tr. 347-49.) 1362 | - FEDERAL TRADE COMMISSION DECISIONS Initial Decision 77 TC.

28. Central States Investment Company (“Central”) is a corporation whose stock is owned by members of the Adams’ family, and was organized to engage in the purchase of securities, office buildings, and land. It owns investments and securities of many different corporations, and other businesses that do not have listed stock. (Tr. 345) On May 4, 1964, OKC sold $1,000,000 of its 514% Convertible Subordinated Debentures due January 1, 1978, to Central, which debentures are initially convertible into 66,666 shares of OKC common stock. (CX 19, p. 15.) These debentures are still held by Central in addition to 124,140 shares of OKC common stock. (Ans. par. 20.) 29. Pipe Investment Company is another Adams trust company established for the benefit of Mrs. Kenneth S. Adams, Sr., and her minor children, and organized to engage in the purchase of land and other corporate businesses and to invest funds to make a profit to build up an equity. (CX 46D; Tr. 344.) It does not own any stock in OKC but may have at one time. (Tr. 238.) 30. Central, Pipe, and Oklahoma all have the same president, William A. Hensley, and are all located in the same office building on the same floor in Bartlesville, Oklahoma. (Tr. 318.) 51. As well as Central and Oklahoma owning substantial amounts of stock in OKC, Mr. Kenneth 5. Adams, Sr., three other Adams family trusts, and Kenneth S. Adams, Jr., also own stock in OKC. (Tr. 346; Ans. par. 20; CX 6.) 32. Mr. Kenneth S. Adams, Sr., as “a total entity” had substantial stock in OKC whether personally, his family or family trusts. It was all his interest. (Tr. 236-37.) 33. In October 1966, OKC purchased a petroleum refinery located near Okmulgee, Oklahoma, from Phillips Petroleum Company. Mr. Kenneth S. Adams, Sr., was then chairman of the beard and chief finance officer of Phillips Petroleum Company, and was a director of Phillips Petroleum until April 1970. (Tr. 343; C2. 1, pp. 82-33.) 34. Under an agreement dated June 27, 1967, among OKC, Bayou Refining Co., Inc., and Ada Oil Company, OKC arranged the financing for a refinery to be constructed bv Bayou Refining Co., Inc., at Pasadena, Texas. (CX 1, p. 33.) Mr. K. S. Adams, Jr, owns Ada Oil Company, and Bayou Refining Co., Inc., is a subsidiary or affiliate of Ada. (Tr. 239.) Mr. Box was a director of Ada Oil Company as was another officer of OKC. (Tr. 380.) 35. The George A. Fuller Company, Inc., a general construction company, was also one of the founders, or organizers, of OIXC. (Tr. 230.) Prior to the liquidation of this company, and its acquisition by B.C.L.M., Inc., in 1965, Oklahoma Land and Cattle Company held stock in this company and still does pending complete liquidation. OKC CORP. AND OKLAHOMA LAND AND CATTLE CO. 1463 1342 ~ Initial Decision The former George A. Fuller Company Inc. is now known as s Gafuleo Company, Inc. (CX 26F; Tr. 233-34.) _ 36. In 1965, Mr. Box was one of the four organizers of B.C.L.M., Inc., who acquired the George A. Fuller Company, Inc. The initials of the company represented Mr. Box, Mr. Trammell Crow, Mr. Lawson, and Mr. Moore. (Tr. 233-34.) Mr. Box became vice president of the George A. Fuller Company, Inc., at that time, and in November 1966, he became chairman and chief executive officer of that company. He held this position as well as that of chairman of the board of OKC at the same time. (CX 1, pp. 37-88.) Both Central States Investment Company and the George A. Fuller Company, Inc., are substantial stockholders in OKC. (Ans. par. 20; CX 1, p. 41.) Other officers of OKC have alternately held various offices in the George A. Fuller Company, Inc. (CX 1, pp. 87-38, 6; Tr. 236.) 37. In December 1968, Jahncke entered into negotiations with the J. Ray McDermott & Co., Inc., for a merger between that company’s subsidiary, Associated Pipe Line Contractors, Inc. (hereinafter referred to as “Associated”), and Jahncke. (Tr. 530.) It was the judgment and opinion of the then president of Jahncke, Herbert Jahneke, Sr., that such a merger would be beneficial to the Jahneke Company. (Tr. 395.) 38. The treasurer of Jahncke also considered this a beneficial merger for Jahncke. Jahncke’s earnings were down, the earnings of the Associated were good, and the two companies would complement one another and enjoy considerable work. (Tr. 531.) C. Background to the Purchase of Jahncke Stock Held by Ideal Basic Industries, Ine.

39. The Jahncke stock held by Ideal Basic Industries, Inc., was purchased by that company in 1965 frem several members of the Jahncke family and represented approximately 23% of the outstanding voting common stock and over 36% of the preferred non-voting stock of Jahneke. (CX 26H, 35A, 87A; Tr. 559.) 40. Mr. Box testified that “... over the years” when Mr. Kenneth S. Adams, Sr., was on the board of directors of OKC, Mr. Box had tried to get “our company” interested in buying certain features of the Jahncke company. However, “Mr. Adams was not interested.” (Tr. 246.) 41. On January 9, 1969, Mr. Adams contacted Mr. Herbert Jahneke, Sr., by telephone, and advised him of his interest in buying the Jahncke stock that was then held by the Ideal Basic Industries, Inc. (CX 48H.) Mr. Adams was aware of the fact that impending negotiations: were being carried out between Jahncke and J. Ray 1364 FEDERAL. TRADE COMMISSION DECISIONS Initial Decision V7 ¥F.T.C.

McDermott & Co., Inc., for a merger with Associated, prior to the time Mr. Adams purchased the Jahncke stock from Ideal Cement Company, and Mr. Jahncke had received “. ... a verbal commitment from Adams prior to the time that he completed the purchase,” that he would not oppose it. (CX 48I-J; Tr. 393.) The public announcement of the merger between Jahncke and Associated appeared in the January 17, 1969, issue of the Wall Street Journal. (CX 481.) The purchase of the Jahncke stock held by Ideal Basic Industries, Inc., was also made on January 17, 1969. (CX 41A-B.) 42. Mr. Box was aware that if the merger between Jahncke and Associated was consummated that this would have prevented OKC from acquiring Jahncke. (Tr. 281.) Mr. Herbert Jahncke, Sr., was somewhat concerned over the possibility that Mr. Box might oppose the Jahncke merger with Associated because the dilution of Jahneke’s stock would make it more difficult for OKC to consummate a merger with Jahncke. (CX 481.) 43. Mr. Adams and Mr. Box sought detailed information from Mr. Herbert Jahncke, Sr., about the Jahncke-Associated merger. (CX 4st-J, H.) Mr. Jahncke advised Mr. Box that he could not provide the information sought inasmuch as he had been advised by his counsel not to divulge any information to any individual stockholder, that such information would have to be released to all stockholders at the same time. (CX 48N.) Mr. Adams expected special consideration and information, and “... he was not worried about any complaints to the SEC.” (CX 48P.) 44, Although the Jahncke annual report for 1968 was not issued until after January 1969, the interim 6 months’ report issued in August 1968, showed that Jahncke was in a loss position. (Tr. 529- 30.) Prior to purchasing the Jahncke stock from Ideal Basic Industries, Inc., neither Mr. Adams nor Mr. Hensley, president of Oklahoma, requested any financial data on Jahncke, nor was Mr. Adams aware of the poor showing of Jahncke for the first 6 months of 1968. Neither had made or requested any study or analysis of Jahneke’s financial position. (Tr. 325, 850-51.) As far as Mr. Adams was concerned his participation in recommending purchase of securities was not based on return in dividends, or price times earnings, «| it?s been more on the prospects or the possibilities of the growth of the company that we have made investments in over a period of 20 years.” (Tr. 349.) Generally speaking, Mr. Adams purchased securities on the recommendation of stock analysts, brokers, or their salesmen, and ideas of his own based on knowledge gained from contacts with financial people in the United States. (Tr. 350.) 45. Mr. Adams’ knowledge of the intent of Ideal Cement Company OKC CORP. AND OKLAHOMA LAND AND CATTLE CO. 15090 1342 Initial Decision to sell. the Jahncke stock came from a friend in the brokerage investment business who had heard that Ideal Cement Company was going to have to divest its stock in the Jahncke company in New Orleans. Mr. Adams’ reaction to this news was “Gee, that’s interesting. Is anything published on that?” The broker friend replied, “Well, I’m just telling you that that’s the information that is available around Wall Street.” (Tr. 357.) 46. Mr. Mayfield R. Shilling, president of Ideal Basic Industries, Inc., of which Ideal Cement Company is a division, testified that although his company had filed a report with the Federal Trade Commission under the requirements of the cement guidelines (Tr. 679), his company considered its ownership of Jahncke stock as an “investment,” that his company had received no formal order from the Federal Trade Commission to divest itself of the stock it held in Jahncke, and that Ideal Basic Industries, Inc., had not advertised or indicated in any way that the Jahncke stock it held was for sale, in fact “We were not aware it [offer] was going to be made.” (Tr. 673.) Mr. K. S. Adams had contacted the chairman of the board of Tdeal Basic Industries, Inc., and asked him if he would be interested in selling the Jahncke stock held by that company. (Tr. 674.) 4%. This common stock, as well as the preferred stock of Jahncke, was purchased by Oklahoma on January 17, 1969, although this was not reported to the Securities and Exchange Commission until February 26, 1969. (CX 41A-B.) Mr. Hensley was responsible for the purchasing of securities for Pipe, Central, and Oklahoma, but he was not too familiar with the Securities and Exchange Commission regulations regarding the purchasing of stock. (Tr. 822.) Mr. Hensley, president of Oklahoma, had nothing to do with the negotiations to purchase the Jahncke stock from Ideal Basic Industries, Inc., by Oklahoma, except for the conversations he had with Mr. Adams. (Tr. 323.) Mr. Adams contacted Mr. Hensley, told him the purchase of the Jahncke stock was “an excellent buy,” and recommended that Mr. Hensley buy it through Oklahoma. It could have been purchased through one of the other Adams trust companies, but Mr. Adams: said put it in Oklahoma. (Tr. 324.) 48. Mr. Adams arranged for four separate 6-month loans, totalling over $3 million dollars and personally guaranteed the payment of the funds. (CX 43B; Tr. 324-25.) Mr. Adams had to guarantee the notes because Oklahoma could not borrow this amount of money on its own. (Tr. 326.) Mr. Adams had guaranteed a lot of notes for the other Adams trust companies, but not one of this size. (Tr. 326, 3338.) 49. Prior to the purchase of Jahncke stock on January 17, 1969, Initial Decision T7 ELC.

Oklahoma had purchased many securities listed on the major stock exchanges. The amount held never accounted for as much as 2% of the outstanding shares of any particular company. (CX 26A-G, 46H-K.) The purchase of Jahncke stock, an obscure, over-the-counter stock, represented a departure from the stock-purchasing procedures of Oklahoma. Its original purchase of Jahncke stock from Ideal Basic Industries, Inc., represented approximately 23% of the outstanding common stock and over 36% of the outstanding preferred stock. By March 10, 1969, Oklahoma had increased its holdings of Jahncke common stock to 27.9% of the then outstanding shares. (CX 26H.) .

50. Mr. Hensley was not aware of the pending Associated merger with Jahncke until January 18, 1969, when he read the January 17, 1969, issue of Wall Street Journal; (Tr. 327) although he had talked with Mr. Adams, and Mr. Adams was aware of the merger. (CX 48I-J; Tr. 393.) The minutes of the meeting of the OKC board of directors, held on January 23, 1969, shows that OKC, ... Was still considering Jahncke Services as a possible candidate for acquisition. (CX 121A.) D. Dallas, Texas, Meeting 51. In January or February 1969, Mr. Edward “Bud” Jahncke, Sr., a cousin of Mr. Herbert Jahncke, Sr., a resident of New Orleans, Louisiana, and a major stockholder in Jahncke, telephoned Mr. Box in Dallas, Texas, to find out information concerning the Oklahoma Land and Cattle Company which had purchased such a large block of Jahncke stock. Mr. Box could have given him this information over the telephone, but Mr. Edward Jahncke, Sr., wanted to come to Dallas, Texas, to talk with him. (Tr. 251.) 52. Mr. Baxter testified that this meeting was instigated by Mr. Edward Jahncke, Sr., for the purpose of obtaining information on QJklahoma Land and Cattle Company since this company had just purchased a large block of Jahncke stock and he was very concerned about his holdings in Jahncke. (Tr. 293.) Mr. Baxter was aware of the “internal strife” between the two factions of the Jahncke family. (Tr. 294.) 53. Mr. Edward Jahneke, Sr., flew to Dallas, Texas, and met in the OKC offices with Mr. Box, Mr. Baxter, and the then president of OKC, Mr. D. W. Rentzel. (Tr. 377.) Mr. Rentzel recalled that Mr. Edward Jahncke’s complaint was about the Jahncke company and shat he had a number of differences of opinion with the management and particularly with his cousin, Mr. Herbert Jahncke. As Mr. Rentzel recalled, Mr. Edward Jahncke, Sr., “. . . indicated a great OKC CORP. AND. OKLAHOMA LAND AND CATTLE CU. 1504 1342 Initial Decision deal of interest in OKC’s taking an interest in it.” (Tr. 3877.) Mr. Edward Jahncke, Sr., suggested that a call be made to Mr. Charles R. Stevens in Fort Myers, Florida, because Mr. Stevens felt the same way about the Jahncke company as did Mr. Edward J ahncke, Sr., and Mr. Edward Jahncke, Sr., believed that Mr. Stevens would be interested in finding out about the new stockholder, Oklahoma. (Tr. 377-78, 294.) 54. Mr. Charles R. Stevens’ wife was a sister. of Mr. Herbert Jahneke. Sr., and held approximately 63,000 shares of common and over 1,200 shares of preferred stock of Jahncke. (Tr. 430.) Mr. Stevens, acting on behalf of his wife, had attempted to sell the Jahncke stock to Mr. Robert Radcliff, Southern Industries, Inc., Mobile, Alabama, in July or August 1968. Mr. Radcliff declined the purchase on the advice of his attorneys since it was felt that such acquisition would be questioned by the Federal Trade Commission. (CX. 110A-B; Tr. 480.) Mrs. Stevens had met with her brother, Mr. Herbert Jahneke, Sr., in New Orleans, Louisiana, in December 1968, at which time she was advised of the intended merger between Jahneke and Associated. (Tr. 431; CX 110A.) She also learned that the policy of the company would be to discontinue dividends in the future and become a growth company. (Tr. 446.) 55. Mr. Stevens wished to sell the Jahneke stock because he had indications that the dividends would be discontinued, and he was secking an investment which would provide a better, or equal, income to that which had been received from Jahncke, and an investment which would provide diversification. (Tr. 431, 446.) 56. Mr. Box telephoned Mr. Stevens from Dallas, Texas, on February 4, 1969, to advise him that Oklahoma had acquired a sizeable block of Jahncke stock and that Mr. Box was interested in arranging a discussion of the “. . . problems about to arise through the sale of a pipeline company “by J. Ray McDermott to Jahncke Service.” (Tr. 482.) During this telephone conversation, Mr. Stevens also talked with Mr. Edward Jahncke, Sr., who was in Mr. Box’s office in Dallas, Texas, at that time, and who urged Mr. Stevens to meet, with Mr. Box and himself in New Orleans on February 12, 1968. (Tr. 254, 377, 433.) . Although Mr. Edward Jahncke, Sr., flew to OKC’s offices in Dallas, Texas, to obtain information concerning Oklahoma Land and Cattle Company, Mr. Box testified that the meeting to be held in New Orleans, Louisiana, on February 12, 1969, would be for the purpose of “evaluating” the Associated-J ahneke merger. (Tr. 253— 54.) Mr. Baxter testified that a subsequent meeting was to be held to discuss Mr. Edward Jahncke’s and Mr. Stevens’ concern about the 1368; - FEDERAL’ TRADE COMMISSION DECISIONS | Initial ‘Decision 17 F.T.C.

new stockholder in Jahncke, Oklahoma Land and Cattle Company. (Tr. 294-95.) BE. The New Orleans, Louisiana, Meeting 58. On February 12, 1969, a meeting was held in the law offices: of Mr. Ewell Walther, a member of the law firm of Stone, Pigman, Walther, Wittman & Hutchinson, 1200 Whitney Bank Building, New Orleans, Louisiana. (Tr. 433.) Mr. Walther had represented OKC in legal matters in the New Orleans area for a year or two prior to the meeting. (Tr. 255.) Present at this meeting were the following: Mr. Cloyce Box, chairman of the board of OKC. Mr. Del Rentzel, president of OKC.

Mr. Donald Baxter, financial vice president of OKC. Mr. Ewell Walther, member of the law firm. Mr. Saul Stone, member of the law firm.

Mr. Paut Pigman, member of the law firm.

Mr. Edward Jahneke, Sr., and his two sons, Edward Jahneke, Jr., and Barton Jahncke, New Orleans, Louisiana.

Mr. Charles R. Stevens, Fort Myers, Florida. (Tr. 255, 377-78, 483-34.) 59. Mr. Stevens testified that Messrs. Box, Baxter, and Rentzel represented OKC as well as Oklahoma; and Mr. Walther, who had represented OKC in legal matters in the New Orleans area, also represented both companies. (Tr. 484; CX 110A.) However, Mr. Hensley, president of Oklahoma, testified that Mr. Walther was not retained by his company until the time he received the letter of inquiry from the Federal Trade Commission. (Tr. 328.) The letter of inquiry from the Federal Trade Commission concerning this matter was dated March 4, 1969. (CX 23A-E.) Mr. Hensley also testified that Mr. Baxter was not representing Oklahoma, He was representing OKC from the standpoint of joining together here. as I previously stated, but OKC was opposed to this Pipe Line transaction as they understood it. We were opposed to it as we understood it. What we were doing was trying to join forces and acquire enough stock to protect our interests. (Tr. 329.) 60. Mr. Hensley also stated that the purpose of the meeting was “to join together because not only was OKC opposed to the Pipe Line deal as they understood it, and, they had an interest in it, in Jahncke because of the relationship and certainly we were opposed to it as we understood it.” (Tr. 328.) 61. Mr. Baxter testified that Mr. Walther, who was the attorney for OKC, represented Oklahoma at this meeting. (Tr. 295.) Mr. Box testified that he didn’t think there was anyone at the meeting representing Oklahoma and didn’t know who committed Oklahoma to any VERY Van 8 sa Vermeer ee eke Veen eee Ve auuu 1342 Initial Decision agreement because he left before any agreement was reached. (Tr. 258-60.) However, Mr. Stevens testified that Messrs. Box, Baxter, and Rentzel were present throughout the whole discussion. (Tr. 435.) 62. Mr. Rentzel testified that the discussion at this meeting revolved around the possibility of OKC’s interest in the acquisition of Jahneke, but primarily it was a recitation by the dissident stockholders of all of the things they thought had happened to them and how they had been mistreated by those in the Jahncke family who were operating the Jahncke company. (Tr. 378.) : 63. Mr. Box’s version of the meeting was that the patries discussed “a method of evaluating” the Associated merger with Jahncke, and that “OKC had a definite interest. My interest was selfish. I wanted to get an opportunity to compete with that deal [Associated].” (Tr. 255, 257.) Mr. Box was trying to get enough ammunition out of the Associated deal to see if he couldn’t stimulate or improve “my deal” to the point to get Mr. Herbert Jahncke to accept it. (Tr. 261.) 64. In a signed affidavit by Mr. Stevens, dated March 15, 1969, he _ stated that at the February 12, 1969, meeting in the offices of Mr. Ewell Walther, in New Orleans, Louisiana, First. It was agreed that if OKC Corp. would make a minimum type tender offer for Jahneke stock we would accept it in the absence of a better offer. The minimum would be $17.50 per Jahncke share to be paid in an undertermined amount of OKC Corp. Common and Preferred Stock which would produce an income equal to that which had been paid in the recent past by Jabncke Common and Preferred Stock. ...

Further, .

Mr. Box advised that such an offer would have to be conditioned on approval of 80% of the Jahncke shareholders so that a tax-free reorganization could take place. (CX 110B.) To Mr. Stevens, this appeared to be a sound investment. (Tr. 487.) 65. According to Mr. Stevens, Messrs. Box, Rentzel, Baxter and Walthers “. . . represented Oklahoma Land and Cattle Co. as interested in preventing McDermott’s acquisition of control of Jahncke and that they believed that by using the Jahncke stock acquired by Oklahoma Land and Cattle Co. as a nucleus it could prevent such _ acquisition and be also in a position to appoint new Directors.” (CX 110A-B.) 66. In response to a question as to whether he was attempting to block the Jahncke-Associated merger, Mr. Box replied: A. I was, I would block anybody. When you try to make a business proposition you don’t try to help the other fellow. You try to get your deal across. (Tr. 262.) :

Initial Decision t ETC.

IF’. Agreement Among the Stockholders 67. The Language of a draft of OKC’s Preliminary Prospectus concerning Jahncke, printed on February 8, 1969, and finally filed with the Security and Exchange Commission on March 11, 1969, shows that OKC was to be a party to the “Agreement Among Stockholders,”

holds the amounts of Jahncke Stock indicated above subject to an agreement with OKC under which had indicated its intent to accept the Exchange Offer. (CX 1221.) This section was changed in a subsequent draft printed on February 22, 1969, to:

OKC has been advised that Oklahoma Land and Cattle Company and certain members of the Jahncke family, holding in the aggregate —.____ shares of Jahncke Common Stock and —______.. shares of Jahncke Preferred Stock, intend to accept the Exchange Offer. (CX 123K.) 68. The verbal agreement among stockholders reached at the meeting in Mr. Walther’s office in New Orleans, Louisiana, on February 12, 1969, was further discussed with Mr. Walther and Mr. Baxter on February 13, 14, 15, 1969, reduced to writing and signed ‘by Mr. Stevens and the other parties to the agreement on February 17, 1969, and at a later date by Mr. Hensley in Bartlesville, Oklahoma. (Tr. 328, 439; CX 110A-C.) At that time, the New Orleans parties turned over their irrevocable proxies to Mr. Walther for use by Oklahoma. (CX 28A-—J.) Mr. Hensley did not participate in the negotiation relating to the agreement. Mr. Walther and Mr. Baxter “talked to these people.” (Tr. 328.) 69. The signed document, which was entitled “Agreement,” (CX 134A-—M) dealt only with the OKC offer and did not contain Paragraph D4 concerning the opposition of the parties to the Jahneke- Associated merger. This was included in an amendment entitled “Supplemental Agreement.” (CX 134M.) (See also CX 27, 28A, 29.) This “Agreement” and “Suppleemntal Agreement” were incorporated into one document entitled “Agreement Among Shareholders,” (CX 30B) and was later signed by the New Orleans parties on March 10, 1969, and by Mr. Hensley in Bartlesville, Oklahoma for Oklahoma on March 17, 1969. (CX 80A-F.) 70. Part of the “Agreement Among Shareholders” deals with “Other Offer” as against the OKC offer. (CX 30H, I.) At that time there were no other offers for the acquisition of Jahncke except the pending merger with Associated. (Tr. 390-414.) 71. Another part of the “Agreement Among Shareholders” deals with a “First Refusal Option” in favor of Oklahoma, whereby the Vee Uae ak ee ee ee Ue es Ue mee 1342 Initial Decision other parties to the agreement gave Oklahoma first refusal option to acquire all of their shares of Jahncke stock. (CX 30J.) Mr. Hensley, president of Oklahoma, testified that Oklahoma did not have the funds to purchase this stock if offered, but that the company could have gotten the money, “We would have borrowed it.” (Tr. 329-30.) 72. In signing the agreement, Mr. Stevens was interested in a sound investment “...in getting rid of the holdings of my wife and children of the Jahncke Common Stock” (CX 110A); “It [Jahncke stock] was a substantial holding, and I felt that my family would be better protected if it were diversified.” (Tr. 431.) Mr. Stevens testified that he had information that dividends of Jahncke would be discontinued (Tr. 431, 446) ; that he was interested in an investment. which would be equal to, or better than, that which he had been receiving from Jahncke (Tr. 431); that whatever proposition was put forth by OKC seemed to be a sound investment (Tr. 4386-37) ; and that he considered the agreement as “. . . binding ourselves to accept an OKC offer in the absence of a better offer, and that offer to be based at $17.50 a share.” (Tr. 439.) 73. For 3 days following this meeting, Mr. Stevens alternately discussed, “. . . the probability of OKC tender offer being in the neighborhood of $17.50 a share, composed of common and preferred stock. And it would be attempted to arrange in such a way that it would be a tax free transaction,” with Mr. Baxter; and “The details of the agreement that we ultimately signed on Monday the 17th, binding ourselves to accept an OKC offer in the absence of a better offer, and that offer to be based at $17.50 a share” with Mr. Walther. (Tr. 439.) The agreement on the OKC tender offer reached at the February 12, 1969, meeting was reduced to writing and signed by Mr. Stevens on February 17, 1969. This agreement was then forwarded to Mr. W. A. Hensley, president of Oklahoma, for his signature. (CX 110B.) 74, As to the February 12, 1969, meeting (Tr. 438) and the “Agreement,” Mr. Box alternately testified that he attended the meeting for 2 hours and left, that he understood an agreement had been reached, ... that I subsequently saw. I did not know the nature of the agreement until later. (Tr. 256.) I never saw the agreement they had between themselves for several months, and I didn’t even, it. didn’t even turn out the way we strated out with it. That was not the agreement they reached. (Tr. 259.) I never saw the agreement. I wes not at the—I had nothing to do, never read the agreement to this good day. (Tr. 260.) I have never read such an agreement. I understand an agreement came out something different than that they agreed before. (Tr. 261.) Initial Decision TW ELC.

75. As Mr. Stevens’ “Affidavit” of March 15, 1969, reflects, it was Mr. Box who advised the group of the offer, and A week or 10 days after the February 17, 1969 visit to Mr. Walther’s office, Mr. Box called me and advised that OKC might have difficulty in getting 80% Jahneke stockholder approval. However, OKC might consider another form of reorganization and would like to send Mr. Don Baxter to Fort Myers, Florida, to discuss it with me. (CX 110B.) ;

76. At the time of Mr. Baxter’s visit to see Mr. Stevens in Florida, Mr. Baxter was working for OKC because he was preparing an S-1 Form for filing with the Securities and Exchange Commission and he didn’t want to file the S-1 Form unless OKC was assured of gaining control of Jahncke. (Tr. 307.) 77. The drawing up of the agreement was a joint effort between “Mr. Baxter and Mr. Walther, . because we had to find out from the members of the Jahncke family -what they were interested in and what they might be willing to accept, so it -was really rather a joint effort in arriving at it. (Tr. 298.) 78. Prior to drawing up this agreement, OKC’s board of directors - were informed on January 23, 1969, that Jahncke was still a possible candidate for acquisition. (CX 121A.) The letter of inquiry sent to OKC from the Federal Trade Commission concerning this acquisition was dated March 4, 1969. (CX 5A4-F.) OKC filed its “Preliminary Prospectus” with the Securities and Exchange Commission on March 11, 1969. (Tr. 309.) The approval of the data contained in this preliminary prospectus was not given by the OKC board of directors until a “Special Meeting” of the board of directors held on March 19, 1969, at the offices of George A. Fuller Company, Inc., New York, New York. (CX 121C-N.) G. Purchase and Solicitation of Jahncke Stock 1. Efforts by Mr. Box, Mr. Baxter and Mr. Walther to Acquire Jahncke Stock 79. In January 1969, Mr. Box personally contacted the financial ‘vice president of the State Mutual Assurance Company, Worcester, Massachusetts, seeking to purchase the stock warrants held by that company in Jahncke. At that time, the warrants were convertible to 89,989 shares of Jahncke common stock. (Tr. 249, 535.) The warrants were not purchased by Mr. Box because he believed the price -excessive. (Tr. 250.) 80. An official of State Mutual Assurance Company advised Jahncke management at that time that Mr. Cloyce Box, of OKC Corp., had approached that company and attempted to purchase the Jahneke warrants which they held. (Tr. 535.) The company had OKC CORP. AND OKLAHOMA LAND AND CATTLE CO. 1373: 1342 : : Initial Decision quoted Mr. Box a price of $1 million for the warrants. (Tr. 535.). After acquiring the warrants, they could’ be exercised. for 89,989 shares of Jahncke common stock at an additional price of. $1,060,000. (Tr. 535.) Another company later purchased these warrants for $900,000 and. exercised them at the additional price. (Tr. 555-56. ) S1. In January 1969, it came to Mr. Herbert Jancke’s attention, from the stock transfer sheets of his company, that there was increased activity in the Jahncke stock. (Tr. 397-98.) He was aware that Oklahoma had purchased the Jahncke stock from Ideal Basic Industries, Inc., in January 1969, but Oklahoma had. not requested that this stock be transferred to its name until March 1969; At the time the request was made by Oklahoma, it was noted by Mr. Herbert Jahneke that Oklahoma had purchased in the range of 16,000 additional shares of Jahncke voting common stock, “. .. it might have been more.” (Tr. 398.) By March 10, 1969, Oklahoma had acquired: 26,925 additional shares of Jahncke common stock. (CX 26H, 43B.) 82. The activity in Jahncke stock continued from January through. February and March 1969, and “. . . the activity was such that the stock that was changing hands was being recorded in brokers’ names of record, which appeared to be street names.” (Tr. 584.) 83. After contacts by Mr. Box on January 2 and 21, 1969, and by Mr. Adams on January 9, 1969, Mr. Herbert Jahneke, Sr., had the: impression that Mr. Box had instigated Mr. Adams into the buying . program that went on for several weeks and, finally, into the purchase of the Jahncke stock from Ideal Basic Industries, Inc. It was. Mr. Jahncke’s opinion that Mr. Box “. . . would like to merge . Jahncke into OKC and that this is what he has had in mind from the beginning. I am somewhat concerned over the possibility that he may oppose this. acquisition of API because of the dilution of Jahncke stock and the fact that it would make it more difficult to consummate the merger such as he had in mind.” (CX 48K-—L, P-Q.) S4. Mr. Hensley authorized Mr. Baxter to purchase Jahncke stock. Mr. Baxter, in turn, authorized Mr. Walther to make the purchases of Jahneke stock. (Tr. 298.) Commencing at. 1:07 p.m., February 12, 1969, the day of the meeting in New Orleans, Louisiana, in Mr. | Walther’s office, Mr. Walther began purchasing Jahncke common stock (CX 388A, 113A), and continued purchasing Jahncke stock through March 11, 1969. (CX 388B-F, H-I, N, Z-2, Z-3.) The mecting in Mr. Walthev’s office was held at midday or early afternoon. (Tr. 438.) Stock purchased was purchased under the same account used by Mr. Walther at Merril], Lynch, Pierce, Fenner & Smith, Inc., New Orleans, Louisiana. Based upon Mr.. Walther’s instructions, the ss 1374. FEDERAL. TRADE: COMMISSION DECISIONS Initial Decision TT E.T.C.

stock purchased ‘from Mr. Panzeca on March 7, 1969, was also placed in this account. (CX 112A, C.) 85. Mr. Walther wrote Merrill, Lynch, Pierce, Fenner & Smith on March 7, 1969, that: he realized « . . the current public market in Jahncke Service, Inc., is approximately 19 bid, offered at 20. I am willing to pay 2514 plus-14 commission for a block of 5,100 shares in a privately negotiated transaction.” (CX 111.) 86. This stock was not transferred to the name of Oklahoma until sometime in March 1969. (Tr. 897-98.) The record date for stock that could be voted at the Jalincke stockholders annual meeting was March 14, 1969. (CX 1, p. 12.) 87. In soliciting Jahncke stock, Mr. Baxter visited Mr. Homer Kees, an investment banker and a partner in the firm of Ducournau - & Kees, Whitney Bank Building, New Orleans, Louisiana, on two different occasions: On the first occasion, Mr. Baxter was accompanied by his attorney, Mr. Walther. (Tr. 573-74.) Mr. Baxter and Mr.’ Walther solicited Mr. Kees’ aid in attempting to influence Mr. Frederick “Pete” Jahncke, son of Mr. Herbert Jahneke, Sr., to sell his stock in Jahncke for cash. (Tr. 573-74.) Mr. Baxter indicated that he would be willing to make a favorable price to Mr. Jahneke for his Jahneke stock. (Tr. 575.) At the second meeting, Mr. Baxter discussed obtaining Mr. Frederick Jahncke’s stock in exchange for “| OKC securities.” (Tr. 574.) On both occasions, Mr. Kees contacted Mr. Frederick Jahncke who made the judgment that he did not wish to sell for cash and did not want to make an exchange for OKC securities. (Tr. 574.) 88. Mr. Davis Lee Jahneke, a voluntecr administrative assistant to the Episcopal Bishop of Louisiana, in New Orleans, Louisiana, and a cousin of Mr. Herbert Jahneke. Sr., divested himself of the stock he held in the Jahncke company by placing some of it in three trusts, and by selling the remainder to Tdeal Basic Industries, Inc., in 1965. The trusts were irrevocable and administered by the National Bank of Commerce, New Orleans, Louisiana. (Tr. 557-59.) 89. In the latter part of 1968, he talked with the trustee of the trust funds because he was concerned about the continuing income in the form of dividends from the Jahneke stock. He understood after his visit with the trustee that a large portion of the Jahneke stock in the trust was sold. (Tr. 560.) 90. On February 21. 1969, Mr. Cloyce Box telephoned Mr. Davis Lee Jahneke. Mx. Box was anxious to know if Mr. Jahncke had any control over the Jahneke stock that was in the trust funds. Mr. Box was also anxious to have Mr. Jahneke use whatever persuasion he UAL UVUALh se LAANEy Used Usa BecaiNay deal Usiaa class Ue AUEUW 1342 . Initial Decision had with the bank to vote the trust stock on behalf of OKC at: the coming Jahncke stockholders meeting. Mr: Jahncke advised Mr. Box that they were irrevocable trusts, entirely controlled by the bank and that anything along the lines Mr. Box was suggesting would have to be discussed directly with the bank. (Tr. 561.) 91. During this telephone conversation, Mr. Box stated that he already: had two very substantial Jahncke stockholders, Mrs. Charles R. Stevens and Mr. Edwar d Jahneke, Sr., “. .. in his pocket” and that “. . . they had just about gotten control of the company, there were just a few thousand shares short of control, and that that was why he was calling me in the first place, to find out about the shares of Jahncke in the trust.” (Tr. 562-63.) ; 92. Mr. Box stated further that they were sure of getting control of Jahncke at the annual meeting and that “. . . it was his intention to vote all of these majority shares of stock in favor of a complete new slate of directors, that he had already lined up.” Mr. Box had already décided who would be elected by them when they got control. (Tr. 568.) This same intention of Mr. Box was also expressed in one of the drafts of OIXC’s preliminary prospectuses printed on February 22, 1969. (CX 123K.) , 93. Mr. Box solicited Mr. Davis Lee Jahncke’s aid in contacting other members of the Jahncke family for their stock, specifically W. Grant Jahncke, who then held the position of vice president in the Jahncke company. (Tr. 564; CX 53M.) He asked me to call him on the phone and the words that he used I would not say that I can. exactly recall them, but he asked me to do was to eall Grant and suggest to Grant that if Grant wanted his job to continue after they took over, he had better call, he would like to talk to Grant about his stock ownership. (Tr. 564.) Mr. Davis Lee Jahncke met with Mr. W. Grant Jahncke and passed on Mr. Box’s message and was told by him that he could not entertain such a proposition. (Tr. 564-65.) This answer was then passed on to Mr. Box. (Tr. 565.) 94. A few days after his telephone conversation with Mr. Box, Mr. Davis Lee Jahncke’s sister-in-law, Loretta Jahneke, called him and asked him if he would come to her resident and talk with Mr. Donald Baxter. He met with Mr. Baxter who queried him on the Jahncke stock held in trust and received the same answer as was given Mr. Box. Mr. Baxter showed him a list of Jahncke stockholders and asked him if he knew any of the stockholders he might be persuasive with to see if they would sell their stock or give a proxy for their stock. (Tr. 565-66.) Neither Oklahoma nor OKC, nor any of their 1376 FEDERAL ‘TRADE COMMISSION . DECISIONS Initial Decision WT ¥E.T.C.

officials, had requested a list of Jahncke stockholders from the Jahncke company. (Tr. 305, 309.). It was Mr. Jahncke’s impression that in the solicitation of Jahncke stock and proxies, Mr. Box and Mr. Baxter were representing OKC. (Tr. 568.) 2. Houston, Texas 95. Mr. Carl C. Lavery, Houston Contracting Company, Houston, Texas, made his first purchase of Jahncke stock through a Houston broker on February 18, 1969, one day after the meeting in Mr. Walther’s office in New Orleans, Louisiana. (CX 38L.) Houston Contracting Company is a pipeline construction company and a subsidiary of Sedco, Inc., an offshore oil drilling company. (Tr. 487-88.) Instructions to the stockbroker were, “Keep stock in street name” (CX 38L), “Hold stock in street name” (CX 38M), “Hold in street name.” (CX 38-O, Q, R, 8.) , 96. Mr. [ensley, president of Oklahoma, was not personally acquainted with Mr. Lavery. (Tr. 330.) Mr. Lavery knew Mr. Hensley by name only. (Tr. 488.) Mr. Adams never heard of Mr. Lavery. (Tr. 356-57.) Mr. Box stated, “I have met him.” (Tr. 270.). Mr. Lavery said his acquaintance with Mr. Box began in J anuary 1969. (Tr. 493.) / 97. Mr. Baxter testified that “. . . at some point after it had become public knowledge that OKC was going to make a tender offer, I started getting a great number of phone calls from various brokers. and stockholders wanting to know if OKC was buying [Jahncke] stock.” Such persons were advised by Mr. Baxter that OKC was “. ++ not buying stock,” but that Oklahoma had bought some and might. be interested. He referred these inquiries to Mr. Hensley. (Tr. 298-99.) The first preliminary prospectus of OKC, announcing its tender offer, was filed with the Securities and Exchange Comimission on March 11, 1969. (Tr. 309.) 98. Mr. Hensley testified that Mr. Baxter had a call from Mr. Lavery saying that Mr. Lavery had some offers from Jahncke stockholders to sell some of Jahncke’s stock. Mr. Baxter phoned this information to Mr. Hensley who advised Mr. Baxter to tell Mr. Lavery to proceed with buying the Jahncke stock. (Tr. 380.) - - 99. Mr. Tavery testified that Mr. Baxter called him and asked him to “. . . give him some help for a friend of his, Oklahoma Land and Cattle.” Mr. Lavery was asked to assist in purchasing Jahncke stock in the Houston area. (Tr. 489.) Mr. Lavery said, “Certainly Tl do it.” (Tr. 490.) Mr. Baxter’s instructions to Mr. Lavery were “,.. not to go above $16 a share,” but Mr. Lavery stated that it. UBL LUKP. AND UKLAHUMA LAND AND CATTLE CO. 135/4/ 1342 Initial Decision was necessary to go above $16 “. .. toward the end of the last purchases.” (Tr. 490.) In fact, 5,000 shares of Jahncke stock was purchased on February 28, 1969, at $20 per share. (CX 38K.) 100. Mr. Lavery’s instructions to the stockbroker were to keep the Jahncke stock purchased “. . . in street name. I didn’t know whose name was going in until such time I was to be told or they were to be told.” (Tr. 491.) It was Mr. Lavery’s understanding that all of the Jahncke stock purchased in his name was placed in street names and later placed in Oklahoma Land and Cattle Company’s name. (Tr. 492.) 101. All of Mr. Lavery’s instructions came through Mr. Baxter (Tr. 492), and he had no other interest in the Jahncke stock “. ... other than to purchase it and deliver it as [he] was asked to do.” (Tr. 493.) Mr. Lavery received no remuneration at all for these services. (Tr. 494.) 102. Mr. Lavery’s purchases of Jahncke stock commenced on February 13, 1969, and continued through March 5, 1969, purchasing a total of 19,856 shares of Jahncke common stock for prices ranging from $15 per share on February 18, 1969, (CX 388L) to $20 per share on February 28, 1969, (CX 88K) for a total amount in excess of $340,000. (CX 38J-Z-1, Z-4.) Checks for the payment of the purchases of Jahncke stock were made out to Mr. Lavery and were sent to the broker in Houston. Mr. Lavery deposited the checks in his own personal bank account and then wrote a check on this account to the broker in his own name. (Tr. 495.) 108. In December 1969, Mr. Lavery purchased 24,136 shares of Jahncke common stock from C. A. Sporl & Company, Inc., New Orleans, Louisiana, in a cash transaction for $478,204.06. (Tr. 496, 520.) Mr. C. A. Sporl, Jr., didn’t accept the OKC exchange offer because he didn’t like it, and considered it “. . . passing out paper.” (Tr. 517.) Mr. Lavery personally invested in the Jahncke stock purchased at this time because it looked to him like a good investment. Mr. Lavery still holds the Jahncke stock. (Tr. 494.) 3. Philadelphia, Pennsylvania 104. Mr. John G. Panzeca is an investor whose office is located on the same floor in the Whitney Bank Building, New Orleans, Louisiana, as the law firm of Mr. Ewell Walther. The latter is located in Room 1200, while Mr. Panzeca is located in Room 1222. (CX 87A Tr. 472.) Mr. Panzeca purchased approximately 1,111 shares of Jahncke common stock in 1967. The majority of the stock he held in Jahncke was purchased in 1968, and he purchased 800 to 1,000 1378S - FEDERAL TRADE COMMISSION DECISIONS Initial Decision TT F.T.C.

shares in 1969: because he thought it was a “good buy” at the time. (Tr. 473, 477-78.) This stock in Jahncke was purchased through several different stockbrokers in New Orleans, Louisiana, Ducournau & Kees; Kohlmeyer; and Schweickhart & Co. (Tr. 473.) Mr. Panzeca eventually sold 5.100 shares of Jahncke common stock on March 7, 1969. (Tr. 457; CX 111.) 105. Prior to the sale of the Jahncke stock which Mr. Panzeca held. he attempted to sell it through Mr. Kees of the brokerage firm of Decournau & Kees. Mr. Kees contacted the Jahncke company but it was not interested in the stock. He believed that trades in Jahncke stock at that time were going for $17.50 per share. (Tr. 572.) Mr. Panzeca was seeking $25 a share net. (Tr. 474-75.) 106. Failing to sell the stock through Mr. Kees, Mr. Panzeca, who had previously purchased his Jahncke stock through New Orleans brokers. decided to sell the stock through his son-in-law, a broker in Philadelphia, Pennsylvania, asking a price of $25 net. His son-inlaw had been a broker since 1967, and Mr. Panzeca wished him to have the commission on the sale of the Jahncke stock. (Tr. 474-75.) 107. The sale of the Jahncke stock was made through the firm of Mr. Panzeca’s son-in-law, Merrill, Lynch, Pierce, Fenner & Smith, Inc.. Philadelphia, Pennsylvania, but the actual delivery of the stock certificates was to that firm’s New Orleans office. The previous week the Jahneke stock had been selling for $18. (Tr. 474-15. 108. My, Ewell Walther, who had been purchasing Jahncke stock in the name of Oklahoma (CX 88A-F, H. I, N, Z-2, Z-3; Tr. 451- 53) was the purchaser of the Jahncke stock held by Ma. Panzeca. A check dated March 6, 1969, drawn on OKC’s general account for $130,050 was issued to and deposited to Mr. Walther’s account. (CX 116.) Mv. Walther then purchased a cashier’s check, dated March 7, 1969, for the same amount from the Whitney National Bank of New Orleans which was given to Merrill, Lynch, Pierece, Fenner & Smith. Inc.. New Orleans in payment for the 5,100 shares of Jahncke stock sold by Mr. Panzeca. (CX 117.) 109. Mr. Walther had given instructions to Merrill. Lynch, Pierce, Fenner & Smith, Inc., to register the Jahncke stock purchased by him in the name of Oklahoma Land and Cattle Company. (Tr. 452, 464.) Because Mr. Walther was “. . . paving above the current bid and offered price for the Jahncke Stock at the time,” the legal department of Merrill, Lynch, Pierce, Fenner & Smith, Inc., required Mr. Walther to sign a letter showing that he was aware of the higher than market price he was paying for the J ahncke stock. (CX 111; Tr. £52.) 1342 Initial Decision 110. Jahncke stock had been purchased by Mr. Walther through Merrill, Lynch, Pierce, Fenner & Smith, Inc.; New Orleans, on March 5, 1969, at a price of $18.75 per share (CX 88F), and Mr. Lavery in Houston, Texas, on the same date for $19.25. (CX 38Z-4.) 111. As to the purchase of the Jahncke stock from Mr. Panzeca, Mr. Box testified, .

A. Well, we thought it was a sort of controlled amount of stock on account of those people we thought would be favorable to. OKC’s offer that we had proposed. We thought it. would be favorable. that that would be the swinging vote, that we have 50% or better.” (Tr. 269.) 112. Mr. Baxter testified that a stockbroker from Philadelphia had called him two or three different times “. . . trying to get OKC to buy these 5,100 shares,” but Mr. Baxter referred him to Mr. Hensley because the price was going to be quite high. Mr. Baxter was not. going to make such a commitment for Oklahoma since the price was “out of line” with the going market. (Tr. 302.) Mr. Hensley was not willing to buy the stock at this price, but “. . . within Just a few hours” Mr. Baxter became aware that the 5,100 shares could represent the “swing vote” in the company. Mr. Baxter had been working with the stockbrokers on buying Jahncke stock and had been following the-amount of Jahncke stock acquired by Oklahoma. (‘Fr. 302.) Atv. Baxter also testified that, At the time we bought the 5,100 shares it appeared to me that with that block of stock and stock that Bud Jahneke and Bob Stevens and Oklahoma Land and Cattie Company owned, that if all of that stock were to vote in faver of the OKC tender offer that we would be successful in the 51% tender offer. (Tr. 301.) 115. OKC paid $25 a share and this was higher than the “going price” at that time. (Tr. 302.) Through March 38, 1969, Oklahoma had borrowed a total of $3,037,350. (CX 48B.) As of March 4, 1969, Oklahoma had expended $3,081,263 for the purchase of Jahneke stock. (CX 26H.) The cost of the Jahneke stock purchased from Mr. Panzeca was $130,050. (CX 119.) 4. Vew Orleans, Louisiana 114. Mr. Saul Stone is an attorney-at-law and is a partner, as is Mr. Ewell Walther, in the law firm of Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans. (Tr. 682.) Mr. Stone has a wholly owned corporation, Madison Investments, Inc., which owns an interest in a local motel, owns other real estate, and has loaned some of its accumulated cash to various borrowers, “. .. and that 21380 _ FEDERAL TRADE ‘COMMISSION DECISIONS Initial: Decision T7 EPC.

chas been the most. if not all of the transactions that Madison Investments: has engaged in.” (Tr. 682, 685.) 115. Mr. ‘Stone -has other numerous accounts in his name with either Merrill, Lynch, Pierece, Fenner & Smith, Inc., or other brokers, as well as accounts in the names of his children, his wife, and his mother-in-law, whose portfolios include assets “. . . in excess of seven figures.” (Tr. 688.) However, Mr. Stone does not look at financial. reports of companies in which he purchases stock, he talks with stockbrokers, and might occasionally read about a stock and “get interested in purchasing it.” (Tr. 689-90.) 116. Through Madison Investments, Inc., Mr. Stone first purchased common stock of Jahncke on January 27, 1969. (CX 114A, 115A.) Orders for the purchase of such stock were placed with Merrill, Lynch, Pierce, Fenner & Smith, Inc., New Orleans, Louisiana, either on, or prior to, that date. (Tr. 683.) Mr. Stone was not aware of Jahnecke’s poor showing for the first 6 months of 1968, nor had he made any study of the Jahncke company prior to purchasing Jahncke stock. (Tr. 683.) However, he thought Jabncke would be “a good investment” (Tr. 685.) Mr. Stone purchased a total of 1,400 shares of Jahncke common stock by February 11, 1969. (Tr. 684; CX 115A-C.) These were the first and only purchases of stock Madison Investments, Inc., had made through this account for the entire year of 1969. (CX115A—B.) This stock was voted “. . . with the OKC Group” at the Jahncke stockholders meeting held in New Orleans, Louisiana, on April 22, 1969. (CX 49C.) Mr. Stone later exchanged his Jahncke stock for OKC stock. (Tr. 685.) 117. Mr. Stone was present at the meeting held in his law firm’s offices on February 12, 1969, along with Mr. Box, Mr. Baxter and Mr. Ewell Walther. (Tr. 484.) Although Mr. Stone was not a member of the board of directors of OKC at the time of the meeting, or at the time he purchased the Jahncke stock, he later became a member of the board of directors of OKC. (CX 105, p. 384.) 118. Mr. Thomas E. Newton, Merrill, Lynch, Pierce, Fenner & Smith, Inc., New Orleans, was the account executive for Madison Investment, Inc. A Mr. Hardie was the account executive in the same office for Mr. Ewell P. Walther, Jr. (CX 64B; Tr. 461.) Bir. Newton testified that Mr. Walther was interested in Jahncke stock and, “. . . asked me if I could find stock that could be purchased he would be willing to buy it.” Mr. Walther gave Mr. Newton several names that he could possibly contact. (Tr. 462.) However, Mr. Saul Stone was the person who authorized Mr. Newton to purchase Jahncke stock for Madison Investments, Inc. (Tr. 463.) OKC: CORP. AND OKLAHOMA ‘LAND AND CATTLE CO. ‘1381 1342. Initial Decision 119. On February 25, 1969, Mrs. Loretta G. Jahncke, widow of Mr. Paul F. Jahncke, Jr., a former vice president of OKC, purchased Jahncke stock for Mr. Walther and had it placed in the name of Oklahoma. (CX 38E, F, G.) Stock was later voted by Mrs. Jahncke and her son Paul F. Jahncke, III, in favor of the OKC slate of directors proposed at the April 22, 1969, stockholders meeting of Jahncke. (CX 49C.) Prior to these purchases, Mrs. Jahncke did not own any stock in the Jahncke company. (Tr. 399.) 120. Mr. J. Edgar Monroe, Canal Assets, Inc., was contacted in mid-January 1969, by Mrs. Loretta Jahncke who sought to purchase the 2,000 shares of Jahncke stock held by Canal Assets, Inc. Mr. Monroe refused, saying that his Jahncke stock was already committed to the then Jahncke management. (Tr. 484.) 191. Mr. Paul F. Jahneke, III, purchased Jahncke common stock as early as January 29, 1969. (Tr. 508.) He had had discussions with, an official of OKC with respect to obtaining stock and proxies of Jahnecke. As a result of these discussions, he solicited proxies from five stockholders of Jahncke and voted them in favor of the slate of directors proposed by Mr. John F. Arning at the April 22, 1969, Jahneke stockholder meeting. (Tr. 481-82; CX 49C.) Mr. Arning is an attorney of record for OKC in the matter before the Commission.

122. Representatives of Merrill, Lynch, Pierce, Fenner & Smith, Inc., with Jahncke stockholder names provided by Mr. Walther contacted Mr. Paul’E. Haygood in February 1969 seeking to purchase 1,500 shares of Jahncke stock held by him. (Tr. 480.) 123. February 24, 1969, Mr. Edward Jahncke, Jr., contacted Mr. C. A. Sporl, Jr., asking him if he were interested in selling the Jalincke stock held by Mr. Sporl’s company. (Tr. 483.) Mr. Jahncke stated that his wife had come into an inheritance and she would like to purchase some of the Jahncke stock. Mr. Sporl refused, advising Mr. Fahneke that he could buy a better stock for investment. (Tr. h14-15.) Mr. Sporl was against the OKC take-over of the Jahncke company and his company had purchased additional stock to aid the Jabnacke management in fighting off OKC. (Tr. 515.) Mr. Sports company sold its 24,186 shares of Jahncke common stock to Mr. Carl C. Lavery, Houston, Texas, in December 1969 for $478,204.06. (CX 49C; Tr. 520.) Mr. Sporl’s company did not accept the OKC offer because it was “. .. sort of a paper deal, and we just didn’t like it.” (Tr. 517.) 124. On March 27, 1969, Mr. Douglas V. Freret, was contacted by Mr. Donald Baxter, who identified himself as an officer of OKC. Mr. 13882 =: FEDERAL TRADE COMMISSION’ DECISIONS: Initial Decision TT F.T.C.

‘Baxter wished to purchase the Jahncke stock held by Mr. Freret’s wife. (Tr. 485.) H. Jahncke Stockholders Meeting, April 22, 1969 125. As of January 1, 1969, there were 654,040 outstanding shares of Jahncke common. stock. By April 22, 1969, OKC and Oklahoma controlled stock and proxies for 325,537 shares, which would have given them control of Jahncke. (CX 49C-E.) On March 11, 1969, prior to the March 14, 1969, record date for stock to be voted at the Jahncke stockholders meeting, J. Ray McDermott & Co., Inc., obtained Jahncke warrants and converted them into 89,989 shares of Jabneke common stock. (Tr. 417-19, 555; CX 1, p. 12; 55C.) J. Ray McDermott & Co., Inc., had. purchased the warrants and shares to aid Mr. Herbert Jahncke, Sr., retain control of his company. (Tr. 418.) As of March 14, 1969, there were outstanding 744,029 shares of Jahncke voting common stock. (CX 55B.) OKC and Oklahoma no longer had control of the outstanding common stock of Jahneke. (CX 49C.) 126. The original Jahncke stockholders mecting was to take place on April 8, 1969, but due to a preliminary injunction suit brought by the Stevens family, Mr. Edward Jahncke, Sr., and Oklahoma questioning the purchase of stock by J. Ray McDermott & Co., Inc., the meeting was delayed until April 22, 1969. (Tr. 419; CX 1, p. 13.) The Court ruled that the shares acquired by J. Ray McDermott & Co., Inc., were validly obtained and could be voted at the stockholders meeting for all corporate purposes but could not be voted in the consideration of the Associated-Jahncke merger. (Tr. 420; CX 1, p. 13.) 127. At the April 22, 1969, Jahncke stockholders meeting, Mr. John F. Arning, attorney for OKC, presented a slate of directors consisting of Messrs. Charles R. Stevens, Cloyce K. Box, Denald Baxter, John F. Arning, K. S. Adams, Sr., Edward Jahncke, Jr., William A. Hensley, H. H. Tormey, and J. H. Moss. (Tr. 400-01.) Of the 744,029 shares of Jahncke commen stock outstanding at that time, 52% or 58% were voted for the incumbent management, 45% in favor of the OKC slate, and the remainder not voting. (Tr. 399, 401, 589; CX 49C-E.) oo 7 I. Subsequent to the Jahncke Stockholders Meeting on April 22, 1969 128. With OKC controlling 45% of the Jahncke stock, the Jahncke a 6 company encountered problems in the operation of its business, some of our customers were not inclined to enter into any long range VIU UUALL. 42uny Usrniasauass aia SRA Vee eee CL Pereres 1342 Initial Decision contracts with Jahncke because of their concern over the fact that they didn’t know who would control the company.” (Tr. 401.) In addition, the restraining order against OKC having expired, “. .. OKC is free to proceed with the completion of the Exchange Offer in accordance with its terms.” (CX 1, p. 2.) 129. Plans were made by Jahncke to raise sufficient funds so that a proposal could be made to OKC to purchase its holdings in Jahncke. A program was diligently worked out by Jahncke to sell assets of the company to purchase the Jahncke stock. (Tr. 539-40.) As a result, Jahncke sold a substantial part of its sand-and gravel operation, as well as the short-line railroad it owned. (Tr. 402-20, 540.) .

130. Mr. Herbert Jahncke, Sr., testified that in negotiating for the purchase of Jahncke stock, “I had several conversations with Mr. Box to see if he was interested in disposing of it. I shouldn't say if he was interested, if Oklahoma Land and Cattle would be interested in disposing of any of their holdings. The response was in the negative.” (Tr. 402.) 131. The reason that they were not interested was a question of price, “We couldn’t arrive at what a fair price would be for the stock.” Mr. Jahncke’s offer to Mr. Box was, “. .. to buy him out at his cost and he said that this was not acceptable.” (Tr. 402.) 32. Prior to the expiration date of OKC’s Exchange Offer, September 80, 1969 (CX 1, p. 4), Oklahoma, the Charles R. Stevens family and Mr. Edward Jahncke, Sr., exchanged their Jahncke stock for OKC stock and debentures. (Ty. 541.) At that time, 46% of the Jahncke stock was held in the name of OKC. (Tr. 542.) The OKC stockholders meeting which formally approved the OKC offer for Jahncke stock was held in September 1969 and took only 20 minutes. (Tr. 273.) J. Control of Jahncke by OKC 133, In early 1969, when Mr. Herbert Jahncke, Sr., first became aware that OKC was attempting to acquire control of his company, he wrote to certain members of the ready-mixed concrete industry informing them of this attempted take-over because it was his opinion that such a take-over was in violation of the guidelines issued by the Federal Trade Commission for the cement industry. (Tr. 494.) “We objected strenuously to OKC’s one-sided effort to take over control of this Company.” (Exhibit G, p. 2, Emergency Petition For Preliminary Injunction, FTC Pleadings Binder No. 8802- 1-2.) 1384 FEDERAL ‘TRADE COMMISSION DECISIONS Initial Decision V7 ¥.T.C.

134. In a recapitulation of his struggle to retain control of his company, Mr. Jahncke stated in a letter.to his employees on December 18, 1969, However, OKC acquired approximately 45% of the stock of Jahncke Service and, regardless of whatever other factors might be involved, we had to recognize that they had become the principal shareholder of Jahncke Service. (Id.) 135. In the late fall of 1969, Mr. Herbert Jahncke, Sr., made the decision to accept OIXC’s Exchange Offer, The fact that some members of the group that had been supporting me were getting concerned about the situation and felt that it should be brought to a conclusion.

In other words, what I am say[ing], I was concerned that I couldn’t hold my family group of stockholders together in one unit. (Tr. 403.) 136. After the expiration of OKC’s Exchange Offer, Mr. Box and Mr. Herbert Jahncke, Sr., conducted private negotiations for the exchange of his stock and the stock of his family (Tr. 273-74), and accepted the Exchange Offer. (Tr. 404.) The Exchange Offer was made on December 15, 1969, or immediately following (Tr. 541), -at which time OKC acquired 88% or 899% of the Jahncke common stock. (Tr. 274.) 137. Mr. Herbert Jahncke, Sr., was replaced as operating president, and now holds only the position of chairman of the board. (Tr. 887.) Mr. W. Grant Jahncke, former vice president in charge of one of the operating departments, retains a position of vice president “In charge of public relations.” (Tr. 1008.) The Products and Their Sale A. Poriland Cement 138. Portland cement is a material that in the presence of water binds aggregates, such as sand and gravel, into a concrete—the most widely used building material in the world. Portland cement is an essential Ingredient in the manufacture of concrete. It represents about 60% of the material cost and over 83% of the total cost of manufacturing, distributing, and selling ready-mixed concrete—the ‘only form in which conerete is sold as a commodity. Finished portland cement is a perishable product if exposed to moisture. It is sold primarily in bulk, with a small portion sold in bags. None is sold in barrels—the latter term simply represents the common unit of measure. Portland cement is an homogencous product that has little utility alone. It is manufactured to standard and rigid speci- URL ULUDY. AINU UKLAMUMA LAND AND CALLE CU. 1500 1342 Thitial Decision’ fications so that the portland cement produced in one plant is physically substitutable for the portland cement in another plant. (Ans. par. 23; CX 66C.) ;

139. Portland cement is divided into five categories by the American Society For Testing Materials (ASTM) designated Types I through Type V. This division is based on certain differences in the composition and characteristics of the various portland cements. Type I, general-purpose cement, and Type IT, moderate-heat cement, are so similar that many companies make only one type that: will meet the requirements of either. Type IIT, high-early-strength cement, is made by many producers for use where time cannot be. allowed for Type I or Type IT to develop strength. Types J, II, and IIT together constitute more than 97% of all the portland cement manufactured in the United States. (CX 71, p. 3; Tr. 605-06, 648, 664, 692.) | 140. As used in these findings the term “portland cement” refers to grey portland cement including Types I through V as specified by the American Society For Testing Materials. Neither masonry cement nor white cement is included. Portland cement is one of the: raw materials used in making masonry cement. White cement is a specialty cement which is used for architectural purposes, and is not normally used in the production of ready-mixed concrete. (Tr. 606, 1018; CX 71, p. 4.) 141. The portland cement industry in the United States is substantial. In 1968, there were about 50 portland cement companies in the United States operating approximately 188 plants. Total shipments of portland cement in that year amounted to approximately: 397 million barrels, valued at about $1.3 billion. (CX 77, 73, pp. 1, 3.) 142. The portland cement industry in recent years has operated with substantial excess capacity. In 1967 and 1968, the percent of capacity utilized was 72.7% and 77.6%, respectively. (CX 72, 73. 143. Portland cement as a product has a relatively low value a pound while at the same time being a heavy, bulky product. In 1967 and 1968, portland cement had an average value of $3.17 and $3.19, respectively, for a 3876-pound barrel or less than a penny a pound. (CX 72, 73.) ;

144. The number of portland cement companics in the United States has been steadily declining. In recent years there have been a number of acquisitions of mergers in the cement industry. During the period of 1955 through 1968, there were about 30 acquisitions, most of the acquiring companies being cement producers. (CX 1386 FEDERAL TRADE COMMISSION. DECISIONS Initial Decision TT FTC.

76A-C.) Only 15 new companies have entered the cement industry during the period 1957-1968. (CX 75.) There were 64 cement producers in the United States in 1950, as compared to 53 in 1969. (CX T7A-C.) 145. The cement industry is highly concentrated. In 1963, the 10 largest. producing companies owned 579% of total U. S. cement, capacity, and the 18 largest accounted for 79% of the national total capacity. (CX 71, p. 2.) The following tabulation indicates the concentration ratios in the cement industry: Percent of Value of Shipments Accounted For By: 4 largest 8 largest: 20 largest companies companies companios 1947... ee ee ee eee eee eee 30 45 70 W582 eee eee eee eee nn ee een eee eee 32 50 : 78 1903.2. ee eee eee eee eee eee eee 29 49 82 : (CX 65J.) 146. Portland cement production is distributed throughout the United States. There are no cement companies serving the entire United States, but the larger companies, through a network of geographically scattered plants, cover major portions of the country. (CX 69, 70.) 147. Portland cement manufacturers sell their portland cement to consumers such as ready-mixed concrete companies, concrete product manufacturers, contractors, and building material dealers. On a national basis, approximately 60% of all portland cement is shipped to firms engaged in the production and sale of ready-mixed concrete. Ready-mixed concrete producers represent the largest and most important class of customers for portland cement companies. (CX 72, 73; Tr. 612, 631, 653, 698.) 148. Portland cement constitutes an appropriate product market for the purposes of this case and a relevant line of commerce within the meaning of Section 7 of the Clayton Act, as amended. B. Ready-Mined Concrete 149. Ready-mixed concrete is made by mixing portland cement, sand, gravel, and water so as to cause the cement to set and bind the entire mass into a hard product resembling stone. The characteristics of the finished product, and particularly its strength, are determined by the amount of portland cement used in the mixture. (Tr. 1012.) 1342 - Initial: Decision 150. Ready-mixed concrete is sold.on a strength sack content’basis;: or pounds a square inch (PSI). The ‘strength, or pounds a square inch, is based on the amount of portland cement used: im the concrete, and the standards adhered to for determining the strength of ready-mixed concrete are those set by the American Society For Testing Materials (ASTM). For 2,500 PSI concrete, 5 sacks of portland cement are used; and for each increment of 500° PSI, an additional one-half sack of portland cement is used. Each one-half sack of portland cement that is added to the ready-mixed conerete increases the cubic-yard cost by 60 cents over the price of 2,500 PSI concrete. (Tr. 1013.) :

151. All ready-mixed concrete companies have the capacity to produce all types of ready-mixed concrete according to the standard specifications of ASTM. Ready-mixed concrete is delivered to purchasers or construction sites in a plastic and unhardened state. “Ready-mixed concrete includes central mixed, transit mixed and ~shrink-mixed. concrete.” (Tr. 1013.) 152. The list price at which ready-mixed. concrete is sold is uniform among the various ready-mix producers in the New Orleans area... However, most producers increase the charge over the list’ price if less than four cubic yards are purchased and decrease the price of a large volume of concrete is purchased. Also, the price charged per cubic yard of ready-mixed concrete generally increases if it is delivered beyond a certain distance. (Tr. 716, 721, 726, 748, 772-74, 802, 805, 807-08, 824, 838-39, S4142, 854-56, 864-66, 875- 76, S79, $92-96, 902-04, 913-17, 926-27, 947-48, 953.) 53. The ready-mixed concrete industry, while a relatively lowprofit mdustry, is nevertheless a substantial industry. In 1963, there were 3,999 companies operating 4,621 establishments with ship-. ments of ready-mixed concrete valued at $2.2 billion. In 1967, there were 4,767 ready-mixed concrete establishments with shipments valued ° at $2.6 billion. (CX 65K, 68, p. 1.) 154. On a national basis, the ready-mixed concrete industry is highly fragmented and is made up of many small firms. In 1958, and again in 1968, the four largest ready-mixed companies accounted for only 4% of the total industry shipments. The 50 largest companies during 1958 accounted for 21% of the total industry shipments and during 1963 accounted for 22% of total industry shipments. (CX65K.) Of the 4,767 establishments operating in 1967, only 1,152 of these had 20 or more employees. (CX 68, p. 1.) Prior to 1959, only five ready-mixed concrete producers had been 1388 - FEDERAL TRADE COMMISSION DECISIONS Initial Decision V7 EY.C.

acquired by portland cement manufacturers; however, during the period 1959 through 1969, .79 ready-mixed cement producers were acquired by portland cement manufacturers, (CX T8A—D.) 155. The majority of the New Orleans area ready-mixed concrete producers are small, with single plant operations being the most common. Most of the New Orleans area ready-mixed concrete producers had sales during 1967 and 1968 of under 50,000 cubic yards. (CX 83.) 156. In the New Orleans area, sales of ready-mixed concrete by the top four firms amounted to approximately 57% and 58% in 1967 and 1968, respectively. (CX 83.) 157. Ready-mixed concrete producers generally obtain their portland cement requirements from more than one supplier. (CX 86-87.) 158. Construction contractors and subcontractors are the principal customers of .ready-mixed concrete producers. These contractors use ready-mixed concrete in the construction of commercial buildings residential structures, foundations and roads. (Tr. 725, 756, 7, 823, 841, 867, 879, 895, 903, 916, 928, 946, 954.) tbo. Ready-mixed concrete constitutes an appropriate product market to be examined and a relevant line of commerce within the meaning of Section 7 of the Clayton Act, as amended. C. Shell 160. Shell, as used in these findings, refers to either oyster or clam shell, or both, which are commercially dredged and sold. The business of dredging and selling shell is a significant industry in Gulf States and certain Atlantic Coast States. (CX 104, Tables IV and V.) 161. The shell along the Louisiana coast in sufficient abundance to be dredged for commercial use are oyster (Crassostrea virginica) and two common brackish water clams (angia cuncata and Rangia flexuosa. ‘These shells are more commonly referred to as “clam shell” and “oyster or reef shell.” (Tr. 789; CX 104, p. 2.) 162. Most of the clam shell dredged in Louisiana is removed from Lake Pontchartrain. (Tr. 969, 988; CX 104, p. 8.) Oyster reefs developed mainly along the Gulf Coast. As river deltas advanced and retreated, reef shell formed and was covered over. by silt only to reform later. For this reason, layers of oyster shell may be ceposiied one above the other. (CX 104, pp. 2-3.) 33. Claim and oyster shell are removed from the water by dredge. The shell is first broken Joose from the reef or raked from the jake bottoms and then sucked up into a large tube. Once removed from VBR Vues - 1342. Initial Decision the water the shell is washed, the mud and sand are dischar ged over-,; board and the shell put on barges. (Tr. 968-69, 991.) : - 164. When the shell industry began in 1913 in the State of Lonisi-. ana, only 300,000 cubic yards of sheli were produced. Currently,’ approximately 10 million cubic yards are produced. Today, approximately one-half of ‘the production is oyster shell and one- -half clam shell. (CX 104, pp. 9, 23-24.) The shell industry in Louisiana is substantial. (CX 104, pp. 28, 31.) In 1968, sales of shell amounted: to $30 million. (CX 104, p. 31.) :

165. The shell industry in. Louisiana is highly concentrated. In the New Orleans area, there are only four principal producers of, shell, and these companies each possess a relatively equal share of the market. (CX 61A.) 166. The shell produced in the State of Louisiana has many uses. The most important are:

Uses of Clam and Oyster Shell on a Percentage Basis General Construction___-____.----------------~----~-----------~ “W---- 32.6% — ' Road Construction____..-._-.----.---------------~---------~-+----- 81.4% . Cement ______-_---___ eee eee eee +--+ + +--+ 17.4% Petroleum & Chemical__.---...-------------------+------------~----- 11. 0% Lime _ ~~ _-__- eee eee eee +--+ + --- ~ +--+ 6.8% © Glasy ______---__- ene 490 - Agricultural Uses_.-----.--------------------~----~-----~----~----- -4% (Cx 104, p. 23.) | 167. Shell dredging in the State of Louisiana has been considered a distinct industry since it was started in 1913. (CX 104, p. 9.) The Louisiana Legislature has enacted statutes aimed specifically at the shell industry. These statutes deal with royalty payments and severance taxes. (CX 104, pp. 8-9.) 168. The Louisiana Wildlife and Fisheries Commission regulates, inter alia, the location from which shell is removed, the operation of the tug-boats, and the licensing of personnel aboard the boats. The fact the licenses are required on the boats used for shell operations is a distinguishing characteristic. (Tr. 971; CX 104, p. 19.) . 169. Throughout a report on the history of shell dredging in’ Louisiana prepared by the Louisiana Wildlife and Fisheries Com- _ mission, the shell industry is compared only with that industry and its product in other states located on the Gulf of Mexico and along the Atlantic seaboard. (CX 104.) 170. Shell, which is available in unlimited amounts in the New Orleans area (CX 105, p. 27), has certain unique physical character- 467-207—73. 89 1390 . FEDERAL TRADE COMMISSION. DECISIONS Initial Decision GT BTAC.

istics which enhance its use and distinguish it from all other products. It is light in weight in relation to its volume, and creates a firm but porous base through which water may flow freely. (Tr. 995.) 171. Because of. its unique characteristics, shell does not compete with any other product for the following purposes: (a) Landfill—Shell is ‘used to replace the earth or to raise the Jevel of a particular site. In swampy areas the use of shell allows pilings to be driven within a day after the shell is placed. (b) Pipe Racks—A mound of shell, 2 feet high on which pipe is placed in order to keep it off the ground. (c) Pipeline plugs—Shell is used to replace bank lines. The purpose is to preserve the flow of streams and the ecology in areas where a pipeline crosses a levee. The plug prevents the natural flow of water from eating away the bank around the pipe. (d) Drilling Mats—Oil drilling rigs are placed on mats made of shel] that have been leveled off. This gives the rig stability when drilling offshore.

(e) There are many other unique uses which shell has in marshy and offshore areas. Limestone is not used for the above purposes as it does not have the proper and necessary characteristics. (Tr. 972-74, 993-96 ; CX 89A-B, 91A-C.) 172. Shell producers, because of the specialized uses of shells, also have unique customers, that is, offshore drilling companies, pipeline companies, and petroleum companies. (CX 89B, 91B; Tr. 872-74, 993-95, 999.) 173. The dredging operation centers around the dredge. Oyster shell is broken loose from the reef by a cutter which extends on a shaft from the dredge. Once the shell is broken loose from the reef, it is sucked from the cutter blades into a large tube by a pump, in much the same manner that material is sucked ‘into a vacuum cleaner. Clam shell does not require cutting blades since clam shell is buried in the lake bottom mud. A rake type device is attached to the end of a long submerged tube and, again, the clam shell is sucked up through the tube. Since the dredged shell is mixed with mud and sand, the mixture has to be washed to separate these elements. (Tr. 785-86, 968-69, 991.) 174. Dredges used for removing shell must have special adaptations, and are expensive, ranging in cost from $750,000 to $1 million, and taking approximately 6 months to build. (Tr. 409, 786, 969- 70. 991-92.) 175. Once the shell is separated and cleaned, it is placed on OKC CORP. AND OKLAHOMA LAND AND CATTLE co. 1391 1342 : Initial Decision barges: for transport to storage or to customers. The barges are moved about by tugboats. (Tr. 786, 970-71, 991-92.) 176: In addition to the above equipment, a spud barge is necessary to unload the barges at the job site. A spud barge is a barge on which a crane is attached.. (Tr. 993.) Other items incidental to the successful operation of the shell business include draglines, dump trucks, radio. systems, and’ miscellancous equipment located at the Janding sites. (Tr. 971, 992; CX 104, p. 81.) The capital necessary: to purchase floating equipment for use in a shell operation was estimated to be $4 to $5 million. (Tr. 971.) 177. Kecause freight costs. are prohibitive, limestone is not competitive with shell in southern Louisiana. (Tr. 985.) In order to be competitive with shell in the New Orleans ar ea, limestone producers would have to secure special freight rates from the railroads, (Tr. 797-08.) 178. Limestone is not competitive with shell in this area because, in addition to the transportation cost, limestone in many cases cannot be substituted for shell. (Tr. 973-74, 985, 995-96.) 179. Shell is competitive with sand and gravel for some purposes, but because of freight cost, it is not competitive in the New Orleans area. There being no deposits of sand and gravel in the immediate New Orleans area, it must be brought in from Franklintown, Louisiana area which is approximately 90 miles distant. The sand and gravel that is brought into the New Orleans area is used in addition to shell in making ready-mixed concrete. (Tr. 974-15, 984, 998, 718, 891, 902, 913, 925.) 180. Shell is used as a base material for roads in “. . . our locale particularly where we have subsoil conditions that are primarily in the sonthern part of Louisiana, this particular material lends itself very well to the use in this application.” (Tr. 972.) The shell used in road work must meet specifications set by the Louisiana Department of Highways. (RX 12A-K.) 181. The shell producers operating in the 100-mile radius of New Orleans, Louisiana, identified only other shell producers as their competitors. (CX 89A-B, 91A-B, 95; Tr. 965-66, 989, 1004.) In fact, Mr. W. Grant Jalncke, in a memo to Herbert G. Jahncke, Sr., not only identified Jahncke Service’s competitors in shell sales as being the only other shell producers, but he distinguished these competitors from the Jahncke competitors in its aggregates business. At the time this memo was sent, Mr. W. Grant Jahncke was’ the manager in charge of Jahncke Service’s sand, gravel and shell department. (CX 61A; Tr. 1003.) The New Orleans area shell pro- 1392 FEDERAL TRADE COMMISSION DECISIONS:

Initial Decision U7 ETC.

ducers, that is, Jahncke, Radcliff, Ayers, and Louisiana Materials, all belong to and are the only members of the Louisiana Shell Producers Association. The purpose of this Association is to further develop the shell industry in Louisiana and to encourage favorable legislation regarding that industry. (Tr. 97 5-76,. 999-1000, 1008-09.) 182. In summary, shell competes with limestone for some uses, such as in the manufacture of glass and cement, and in agriculture; however, it is not competitive for most uses in the 100-mile radius of New Orleans. (Tr. 983-85, 996; CX 104, p. 28.) Shell also competes in some instances with aggregates. (Tr. 972, 984; CX 104, p- 23.) In addition, shell has many uses for which neither aggregate nor limestone would be suitable substitutes. 183. Shell is a relevant product line of commerce within the meaning of Section 7 of the Clayton Act.

Section of the Country A. Portland Cement.

184. A portland cement plant’s effective area of distribution is limited geographically because of the high shipping cost in relation to its low product value and bulkiness. Transportation costs not only limit the market area of the individual plant but prohibit profitable distribution from one area to another. Generally, most portland cement plants do not ship further than 200 or 300 miles from the plant. Exceptions exist in isolated areas, such as Montana, and areas where water transportation is available. (Tr. 606-07, 627, 649-50, 662, 692-94, 763; CX 71, p. 3, 1, p. 82.) 185. Portland cement is an homogenous product and, in general, the product of one plant is physically substitutable for the product of another. It is produced according to ASTM Specifications, which cement producers adhere to rigidly. Therefore, consumers will not pay more for it than the current market price in that area. (Tr. 593, 628-29, 605-06, 647-48, 664, 692; CX 211.) To be competitive in an area, a supplier of portland cement has to meet his competitor’s lowest delivered price. The selling price of portland cement in any given area is usually established by those producers with plants located nearest the area. Producers shipping into the area must absorb all or part of the freight cost in order to be competitive in price. (Tr. 590-93, 605, 611, 652-53, 662, 697.) 186. Portland cement producers must provide prompt delivery service to be competitive. Service as a competitive weapon has re- OKC CORP. AND OKLAHOMA LAND AND CALLLH CU. Lovo 1342 , Initial Decision sulted m widespread and necessary use of distribution terminals and truck delivery whereby delivery can be made within a few hours after an order is placed. Most distribution terminals are located in or adjacent to a metropolitan area. The growing use of terminals illustrates the proposition that within the broad geographic reach of any cement plant there are separate and distinguishable submarkets. (Tr. 590-91, 607-08, 651, 663, 693-94; CX 69-70, 71, p. 13.) Distribution terminals are established to better service customers or to enter a new market. (Tr. 663.) 187. The availability of prompt delivery by truck allows the ready-mixed concrete producer to maintain smaller storage facilities and a smaller inventory and thereby reduce his investment. As a result, the effective competitors or practicable sources of supply in a given area are those companies that have plants or distribution terminals nearby and can furnish prompt service. (Tr. 590-91, 607- GOS, 651. 663, 693-94; CX 71, p. 13.) 186. The largest. class of customers for portland cement, readymixed concrete companies, normally operates in only one area. Because of this, cement producers deal with different customers in their different. marketing areas. (Tr. 6538.) 18d. Metropolitan areas are recognized by portland cement manufacturers as distinct focal points of portland cement consumption. “The more people living in an area, the more need for building highways and everything that uses it; therefore the greater the population concentration, the greater the cement usage.” There is a direct. relationship between an area’s population and its cement consumption. (Tr. 364, 591-92, 605, 630, 611, 649, 653, 666, 692-96.) 190. Cement manufacturers consider “. .. the parishes which comprise the concentrated metropolitan part of New Orleans,” as the New Orieans market area (Tr. 632, 608, 666; the “. . . New Orleans marketing area would be, as far as we are concerned, that area which looks to New Orleans for its livelihood, where your metropolitan mass is.” (Tr. 696.) 191. Standard Metropolitan Statistical Areas are defined on the basis of such factors as population, labor force and the degree of economic and social integration between counties or parishes. (CX: 105.) These are basically the same factors a cement manufacturer looks Zor when establishing a terminal or defining a focal point for consumption of a plant’s production.

192. According to the 1960 Census, there are 231 metropolitan areas in the United States. The New Orleans area is the 28th largest metropolitan area in the nation. (CX 103.) This is the area that all cement suppliers consider as a focal point for consumption of port- 1394 |. FEDERAL TRADE. COMMISSION DECISIONS Initial Decision 77 WTC.

land cement. Since Jahncke purchased its portland cement in. the New Orleans area, the effects of the acquisition will be most, direct and immediate upon competition in that area. 193, The New Orleans Standard Metropolitan Statistical Area is a section of the country in which to examine the effects of the challenged acquisition on the portland cement line of commerce. B. Ready-Mixed Concrete 194. The marketing area of a ready-mix concrete plant is limited to an area within a relatively short distance of the ready-mix plant. This is due principally to the nature of the product. Ready-mixed concrete tends to harden as soon as water is added to the raw materials. Other factors limiting a ready-mix concrete plant’s area of distribution are: the cost of transportation; the product, which is perishable, must be installed or poured within a short period of time after mixing—certain federal and state regulations specify the length of time after the initial mixing within which ready-mixed concrete must be poured; and truck-licensing requirements. The distance at which New Orleans ready-mixed concrete operators Emit their deliveries varies, but it averages approximately 17 miles from the plant site. (Tr. 405-06, 717-20, 749-51, 772-74, 803-04, 820-21, 838-39, 853-54, 864, ST5-76, 892-94, 902-03, 913-15, 926-27, 946-47, 952-53.) 195. ‘The majority of ready-mixed concrete producers ave located in and around urban areas which are the centers of population and construction. (Tr. 668, 700.) / 196. The larger reacdy-mixed concrete operators have more than one plant in order to better distribute their product throughout the metropolitan area. (Tr. 721-24, 753-55, 774-75, 821-29, 942-44.) 197. Ready-mixed concrete companies in the New Orleans area sell most of their concrete within the four specified parishes which comprise the New Orleans metropolitan area. (Tr. 724, 753-55, 774-15, 806, 821-22, 838, 840, 855, 877, 894, 903, 927, 942-44, 954.) 198. The ready-mixed concrete producers located in the New Orleans area, considered only ready-mixed concrete plants located in their area as competitors and indicated that two companies, located across Lake Ponchartrain from New Orleans were not competitors because they were not in their market. (Tr. 729-80, 758-59, 781- 82, 810-11, 827-29, 844-45, 859-60, 870, 881-82, 898-98A, 907, 919, 930-81, 950-51, 957-58.) 199. At the time OIC acquired control of Jahncke Service, Incorporated, six of Jahncke’s ready-mix concrete plants were located OKC CORP.. AND OKLAHOMA LAND AND CATTLE co. 1395 1342 : Initial Decision within the New Orleans metropolitan area. An additional Jahncke yeady-mixed concrete plant was located in Belle Chasse, Plaquemine Parish; however, this plant, which is adjacent to Jefferson Parish, sold 80% of its production in Jefferson Parish and only 20% of its production in Plaquemine Parish. (Tr. 943; CX 58A-B.) 200. The New Orleans metropolitan area, which is comprised of ‘the Louisiana Parishes of Jefferson, Orleans, St. Bernard, and St. Tammany, is a section of the country in which to examine the effects of the challenged acquisition on the ready-mixed concrete line of commerce.

C. Shell 201. The effective marketing area of a shell producer is limited to the area in which he can economically distribute from his base of operations—the dredge, landing, and storage site. The price of shell is based on cost of dredging plus cost of transportation. The factors that limit the effective marketing area include the location of competitors’ plants, the necessity of providing assured delivery to the customer, the high transportation cost, and the homogenous nature of the product for which customers will not ordinarily pay more than the prevailing market price. In order to be competitive in any area, the shell producer must meet the lowest delivered price of its competitors. This is often only accomplished by absorbing most, if not all, of the shipping costs. (Tr. 410-11, 549-50, 975, 982, 998-99, 1008; CX 29-0.) 202. Shell is a bulky product weighing approximately 1,750 pounds a cubic yard with the usual sales price of $2 to $2.25 a cubic yard. (Tr. 968, 978, 1002.) Under OKC’s contract with Jahneke, OKC paid Jahneke $1.41 a cubic yard for shell. (CX 1, p. 31.) 203. In addition to the high cost of equipment needed to produce shell for commercial sale, the producer must pay a royalty to the Louisiana Wildlife and Fisheries Commission and a severance tax to the Louisiana Department of Revenue for each cubic yard of shell dredged. (CX 104, pp. 24-25.) 204. There are five major shell producers in the State of Louisiana. They are Ayers Materials Co., Inc.; Louisiana Materials Co., Inc.; Radcliff Materials, Inc.; Lake Charles Dredging and Towing Company, Inc.; and Jahnceke Service, Incorporated. (CX 104, map 5, 89A, 91B, 95; Tr. 967, 981-82, 989-99, 1004.) 205. Lake Charles Dredging and Towing Company, Inc., which is located in Lafayette, Louisiana, does not consider itself a competitor in the relevant shell market area. Also, some of the com- 1396 — FEDERAL TRADE COMMISSION DECISIONS Initial Decision G7 ¥F.T.C.

‘panies that do operate in the relevant shell market area do not con- ‘sider Lake Charles Dredging and Towing Company, Inc., as a competitor. (CX 97, 95; Tr. 967, 981-83, 989-90.) 206. Sixty percent of Jahncke’s shell production was sold in the Greater New Orleans trading area, and the remainder was sold within a 100-mile radius of New Orleans. (Tr. 1007-08.) Jahncke’s area of distribution for shell is generally limited to approximately a 70-mile radius from New Orleans, but it does ship by rail to a distributor in Baton Rouge, Louisiana, who in turn, distributes the shell an additional 30 miles. This distributor accounts for approximately 5% of Jahncke’s sales of shell. At one time Jahncke sold a small amount of shell to a distributor in Mobile, Alabama, but does not do so now. ‘At the time it did ship to the distributor in Mobile, it was not a profitable business because of the shipping distance and Jahncke had to absorb transportation costs. (Tr. 548-50.) 207. Ayers Materials Co., Inc., ships the major portion of its production within the 100-mile radius of New Orleans. This company ships approximately 19% of its shell outside this radius but only when a regular customer is not able to pick up the shell in New Orleans. It is not profitable, and the company prefers not to do it, but does it for good will. (Tr. 997-98.) 208. Radcliff Materials, Inc., entered into the shell-dredging business by acquisition of existing companies which also included their dealer organizations for the sale of shell. The dealers are located as far west as Lake Charles, Louisiana. Radcliff distributes to them as well as an occasional buyer in southeastern Texas, in the Beaumont area. (Tr. 790.) Sales in the Beaumont area do not represent a great, percentage of the total shell sales of this company. (Tr. 790.) 209. Radcliff produces shell from two locations in the State of Louisiana. One location is in the Atchafalaya Basin, approximately 100 miles from New Orleans, in the coastal waters off Louisiana. Reef, or oyster, shell is produced from this location. (Tr. 784-85.) The other location is Lake Pontchartrain and Lake Maurepas, which is considered a single location and from which clam shell is obtained. (Tr. 788-89.) 210. The New Orleans area shell producers limit their area of distribution because to the north of New Orleans they run into competition with aggregate producers, to the east and west they run mto competition with other shell producers. (Tr. 982; CXGLA, 89A, 95, 9A.) 911. Each of the shell companies operating in the New Orleans area named the same companies as their competitors. These same URL UUNY. AIND UnWATLUIMA LAIN ADIN UAL sad UU. auus 1342 . Initial Decision companies are the only shell producers who are members of the Louisiana Shell Producers Association and they are the only shell producers soliciting and selling shell in the 100-mile radius area. (Tr. 546, 788, 967, 975-76, 989, 999, 1008; CX 61A, 89A-B, 91A-B.) 212. The area within a 100-mile radius from New Orleans is a “section of the country” in which to examine the effects of this acquisition on the shell line of commerce. Competitive Effects of the Acquisition A. Portland Cement 1. Sources of Supply 213. The practicable sources of portland cement to the New Orleans area? are the portland cement companies whose freight absorption is not too great or which ship within the area from plants or terminals located in the New Orleans area. (Tr. 609, 632, 654, 666, 694-95; CX 13, 81.) The following seven companies competed in the sale of portland cement in the New Orleans area in 1967 and 1968: 1. OKC Corp.

Dundee Cement Co.

Ideal Cement Company Alpha Portland Cement Co.

Lone Star Cement Corp.

Southern Cement Co.—Div. Martin Marietta Corp. Texas Industries, Inc.

cs tS sl (CX 79.) 914. The total shipments of portland cement into the New Orleans area from all sources for the years 1967 and 1968, including shipments of OKC and Lone Star Cement Corp. (CX 81), were as follows: Year:- Thousands of Barrels 1967 _--_.--_---------------- eee --- 8,572 1968 --_--_------------------------------------- 3, 778 (a) Dundee Cement Co.

915. The Dundee Cement Co. (hereinafter sometimes referred to as “Dundee”) services the New Orleans area from a terminal that was built in New Orleans in 1967. It was necessary for Dundee to have a terminal in New Orleans in order to render the necessary delivery 1“New Orleans area” is used herein interchangeably with “New Orleans metropolitan area” and is comprised of Jefferson, Orleans, St. Bernard, and St. Tammany Parishes, Louisiana.

13898 |: FEDERAL TRADE COMMISSION DECISIONS Initial Decision 47 ETC.

service to local customers by truck from the terminal. Nearly 100% of the terminal’s shipments are to ready-mixed concrete producers. (Tr. 632, 638.) 216. Dundee ships portland cement by barge to the New Orleans terminal from its plant at Clarksville, Missouri, which was completed in 1967. That plant's total capacity is a little less than 7 million barrels. The plant also serves terminals in Minneapolis, Minnesota; Rock Island, Tlinois; Chicago, Illinois; St. Louis, Missouri; Nashville, Tennessee; Vicksburg, Mississippi; Mobile, Alabama; and Houston, Texas. (Tr. 627.) These cities are focal points of portland cement demand in the area served by the Clarksville plant. (Tr. 630; CX 81.) Shipment into Year New Orleans Market share area in thousands of barrels 1967.22 eee ee eee: 61 1.71% 1968_. 2-2 eee ee eee eee 106 2.81% (b) Zdeal Cement Company 217. Ideal Cement Company (hereinafter sometimes referred to as “Ideal”), a division of Ideal Basic Industries, Inc., serves the New Orleans area “mostly” from a terminal located in New Orleans. (Tr. 665.) The New Orleans terminal is supplied from Ideal’s Baton Rouge, Louisiana, plant.

218. In order for Ideal to compete effectively in the New Orleans area, if operates a terminal there to give customers service. (Tr. 663.) The New Orleans area is an important market for Ideal’s Baton Rouge plant. (Tr. 666.) 219. Ideal’s Baton Rouge plant’s area of distribution is the southern two-thirds of Louisiana. The plant ships portland cement to New Orleans by barge. (Tr. 666, 677.) 220. Ideal is currently the largest supplier of portland cement to the New Orleans market. (CX 81.) Shipment into Year New Orleans Market share area in thousands of barrels 1, 367 38. 27% 1,198 31. 71% UBU Uva. see.

1342 - Initial Decision (c) Alpha Portland Cement Co.

221. The Alpha Portland Cement Co. (hereinafter sometimes referred to as “Alpha”) served the New Orleans area from a terminal it built in New Orleans in 1964. The purpose of the terminal was to serve, by truck, customers in the immediate area that could not be properiy served if shipments were made from the plant. The terminal was built at the cost of $700,000 and has a capacity of 16,000 barrels of portland cement. (Tr. 607.) 222. The New Orleans terminal was supplied from Alpha’s Orange, Texas, and Birmingham, Alabama, plants. The Orange plant, which became operational in 1967, has a capacity of 1.7 million barrels. Its geographical area of distribution is along the Gulf Coast from Houston, Texas, to Baton Rouge, Louisiana, Individual metropolitan areas such as Beaumont, Port Arthur, Orange, Houston, Baton Rouge, and New Orleans are the focal points of portland cement demand within the broader area served by the Orange plant. (Tr. 604-05; CX 81.) Shipment into Year New. Orleans Market share area jn thousands :

of barrels W967 one en ee eee 203 5.68% VOCS ee en eee eee 182 4, 82% 223. Alpha closed its New Orleans terminal in October 1969. The decision to close the terminal was made because Alpha felt it was foreciesedt from selling in this market and because so many readymixed concrete dealers in the area were either owned or controlled by cement producers. (Tr. 608.) (a) Lone Star Cement Corp.

224. The Lone Star Cement Corp. (hereinafter sometimes referred to as “Lone Star”) services the New Orleans area from its plant located in that city. This plant was constructed about 50 years ago, has @ present capacity of 2 million barrels. Its area of distribution includes all of the State of Louisiana and the lower part of the Stat: of Mississippi. (Tr. 692.) , 225. There are several focal points of portland cement demand within the New Orleans plant’s broader area of distribution. These focal points were identified as New Orleans, Baton Rouge, Lafayette, and Gulfport. The New Orleans area is an important market for Lone Star, and Lone Star maintains a sales office and two salesmen there. (Tr. 692, 697; CX 81.) 1400 _ . FEDERAL TRADE COMMISSION DECISIONS Initial Decision 37 ETC.

Shipment into Year . New Orleans Marcket share area in thousands of barrels 4,123 30.44% 968 25. 629% (e) Southern Cement Co.

226. Southern Cement Co. (hereinafter sometimes referred to as “Southern”), is a division of Martin-Marietta Corp. Southern services the New Orleans area from a terminal that was built in’ 1963. Prior to placing the terminal in New Orleans, Southern had not participated in the New Orleans portland cement market. (Tr. 651- 52.) 2°7. Southern ships portland cement to the New Orleans terminal from its plant in Roberta, Alabama. The cement is transported in bulk via covered hopper railway cars. In addition to serving the New Orleans terminal, the Roberta plant supplies terminals in Meridian, Mississippi; Charlotte, North Carolina; Augusta, Georgia; Jacksonville and Tampa, Florida. (Tr. 650-51; CX 81.) Shipmeut into Year New Orleans Maricet share areain thousands of barrels 1967. 55 Le 1968. 34 ~ 2055 (f) Zexas Industries, Inc.

228. Texas Industries, Inc. (hereinafter sometimes referred to as “Texas Industries”), currently serves the New Orleans area through its Louisiana Industries division. All cement that Texas Industries ships into the New Orleans area goes through Louisiana Industries, Louisiana Industries operates a terminal in the New Orleans area that was built subsequent to 1960. (Tr. 591, 742.) 229. The New Orleans terminal is served from Texas Industries’ only plant, located in Midlothian, Texas, near Dallas. (Tr. 588-89.) The plant has a rated capacity of 4,800,000 barrels a year. Texas wt Industries also operates terminals in the following. cities: Houston, OKC CORP. AND OKLAHOMA LAND AND CATTLE Co. 1401 1342 -Initial Decision Texas; Shreveport, Monroe, and Alexandria, Louisiana; Jackson and Tupelo, Mississippi; Memphis, Tennessee; and Denver, Colorado. Ail terminals are served by rail. (Tr. 589-91.) 230. Louisiana Industries operates a ready-mixed concrete facility in New Orleans under the same name. This company does not use its parent company’s cement exclusively .because the parent company tries to sell as much of its production as possible near its plant. It only ships to New Orleans, where a great deal of freight must be absorbed, when it needs the business. (Tr. 742, 763; CX 81.) Shipment into Year New Orleans Market share area in thousands of barrels J9G7 Ww ee ee ne enn nn en ee ne ne eee ee eens 7 1. 96% 1968.0 en ee en ee en ee en nn ee eee eee ene eee eee ee ~ 323 8.55% 2. Market Structure 931. The structure of the New Orleans area portland cement market was highly concentrated during the years 1967 and 1968. The. market shares of the four largest sellers are shown in the following tabulation :

2 largest 3 largest. 4 largest companies companies companies Ideal Comont Co_.....- 38. 27% 38. 27% 38. 27% Lone Star Cemen 31.44 31.44 31. 44 OKC Corp_.....------ wa nn en nnn nnn nnn enn ee eee en een nee 19. 40 19. 40 Alpha Portland Cement Co-__...-..-----.------------------- ee eo ee nn nn eee nen eee ee — 6.68 Total ..-2--2-------e eee ee eee eee ee ene eee 69. 71% 89.11% 94. 79% Ideal Comment. Co. ..------------ eee een eee een ee 31.71% 31.71% 31.71% Lone Star Cement Corp-_- 25. 62 25. 62 25.62» OKC Corp_-----_--------------------- == == eo en ene nen enn eee eee 25. 60 25, 60 Texas Industries, Inc..-...----------------------- += eee ne ee enn ence eee en enn eee 8. 55 Total_.-2..-.------------- eee ee 57. 38% 82.93% 91.48% (CX 82.) 1402 ne - FEDERAL -TRADE ‘COMMISSION DECISIONS: “Initial Decision G7 BTC.

232. ‘As:shown above, the concentration decreased slightly in 1968. One reason for this was that Texas Industries, which was not one of. the three leading producers, increased its market share from 1:96% to 8.55%, thus reducing, in turn, the leading companies’ shares. The basis for this increase was explained by an official of Texas Industries. He was asked why Louisiana Industries, a division of Texas Industries, which operates a ready-mixed concrete business ‘in’ the New Orleans area, distributed its cement purchases among several companies in 1967 but not in 1968. He replied: . You would have to know the basic distribution philosophy of Texas Industries of their cement plant, which means just like any other business, they are going to sell their cement the nearest distance to Dallas or Midlothian as. possible. They are only going to ship to New Orleans ... where they have to absorb a lot of freight, when they need the business. (ir. 763.) 233. The total volume of portland cement shipments into the New Orleans area increased from 3,572,000 barrels in 1967 to 3,778,000 barrels in 1968. Most of the increase was accounted for by only two companies—Texas Industries and OKC Corp. (CX 81.) 234. In 1967, approximately 48% of total portland cement sales in the New Orleans area were to ready-mixed concrete producers, and in the following year sales to this class of customers were approximately 44%. This was well below the national average of nearly 60% in 1968. (CX 73, Table 16.) This was accounted for by the fact that in the New Orleans area, Ideal, the area’s largest portland cement supplier, shipped approximately 30% of its area sales to one customer, which was not a ready-mixed concrete producer but. was in the prestressed concrete business. (Tr. 667.) In addition, several oil well service companies located in the area purchased lar ge volumes of portland cement. (Tr. 698; CX 15-16.) 235. During the years 1967 and 1968, Jahncke Service, Incorporated, one of the largest consumers of portland cement in the New Orleans area, accounted for 13.55% and 11.41%, respectively, of the total portland cement consumption in each of the two years. In 1967 and 1968, it was the largest consumer of portland cement among ready-mixed concrete firms, and accounted for 28.21% and 26.15%, respectively, of all purchases made by ready-mixed concrete firms as shown by the following tabulation: OKC CORP. AND OKLAHOMA LAND. AND CATTLE CU. L4U5 1342- Initial Decision © : Shipments to Jahneke purchases as percent of: Year Total ready-mixed Purchases by shipments companies Jahneke Total Ready-mixed’ shipments shipments 1967_.--_------. 8, 572 1, 716 A484 13. 55 28. 21 cr 3, 778 1, 648 431 1141 26,15 (CX 81, 84, 85.) 236. During the period 1967-1968, Jahncke, as one of the largest. constumers of. portland cement in the New Orleans area, purchased portland cement from four different producers and white cement from the Trinity Division of the General Portland Cement Company. (CX 57B, 86, 87.) The portland cement shipments to Jahncke by company are shown by the following tabulation: 1967 1968 Supplying company :

. 1000 Percent of 1000 Percent of barrels total barrels total Alpha Portland Cement Co..-...------. 69 14. 20 50 11. 60 Ideal Cement Co__._.....-. 167 34. 50 154 35. 70 Lone Star Cement Co. - 57 11.80 1] 2.60 OKC Corp... 222. Wi 39. 50 216 50. 10 9 0) 52) nr 484 100. 00 431 100. 00 237. OKC acquired the largest producer of ready-mixed concrete and one of the largest consumers of portland cement in the relerant. New Orleans area market. This acquisition gave it the power to completely foreclose competing portland cement companies from a substantial portion of that market. (CX 84.) 238. Of the top ready-mixed concrete producers in the area, Jahneke was one of two independents left. The second largest producer, Jimco, Ine., is mdebted to Lone Star and usually purchases from Lone Star. (CX 124A-U.) The third ranking company, Louisiana Industries, Inc., is a subsidiary of Texas Industries, Inc. The fifth ranking company, Ready-Mix Concrete, is in debt to OKC for nearly 4300, 000 and buys almost exclusively from OKC. Radcliff Materials, which supplies shell to Ideal Cement Co. to use as a source of raw material in the making of portland cement at Tdeal’s Baton Rouge plant, buys nearly all of its cement requirements: from that ° company. These five ready-mixed concrete companies account for nearly 70% of all purchases of portland cement made by ready ~ mixed concrete companies in the New Orleans area. (CX 124A-U; Tr. 887-88, 614-15, 633-35, 654-56, 780, 594, 741-42, 831-39.) . 1404. FEDERAL .TRADE COMMISSION. DECISIONS Initial Decision 7 B.TAC.

Purchases of Portland Cement, in thousands of barrels, by ready-mixed concrete producers in the New Orleans area and the percent purchased by each to the total purchased by all producers for the years 1967-1968 1967 1968 Ready-mix company .

Cement Percent Cement Percent purchases of total purchases of total Carlo Ditta, Inc__.--._--------.------------------ 159 154 - 9. 34 Dixie Bldg: Mtis. Co., Inc - 34 32 1.94 Dixie Concrete, Inc._.-.- 27 33 2.03 Dowdy Concrete Co., Inc_...--2 2-2-2 ---- eee i4 0. 85. Drake Concrete Co., Inc 62 67 4.07 Durock, Inc. 22 31 1.88 Jacat Corp. 45 41 2.49 Jimeo, Inc. -- 267 258 15. 66 Lakeview Concrete, Inc_--._--- 52 22 1.33 Louisiana Industries—Div. Texas Ind. 153 208 12. 62 Nash Mullikin Mtls., Inc..-----.------- 38 15 0.91 Owens & Son, Inc._-----.------2------------ eee 37 37 2.25 Peter Judlin, Inc__-_.--------.-.----.--.--------- 21 . . 16 0.97 P & W Concrete Co-_-_---. 2 eee een ene ene eee 12 0. 73 Radcliff Mtls., Inc.-....-.-----------------------+ 171 9,97 126 7. 65 Ready-Mix Conerete, Inc......-...-.------.------ 105 6.12 3 6. 86 Standard Mtls., Inc._..-.------------------.------ 21 1, 22 2t 1.27 Tiger: Mix Concrete Co., Inc..-....,---.---------- 18 1.05 17 1.03 Jahneke. Service, Incez.........----.--------------+ 484 28, 21 431 26.15 Total_...---- ele eee ee eee eee eee 1, 716 100. 00 1, 648 100. 00 (CX 84.) 239. There is evidence that the pressures created by the acquisition of Jahncke and the substantial foreclosure of the market resulting therefrom may cause competing portland cement producers to either withdraw from the market or to take similar action to protect their substantial investments in the market. (Tr. 382-83, 615, 671-72.) 240. One of the cement companies, Alpha, is opposed to vertical integration in the cement industry because “. . . it eliminates markets. We would like to be able to sell cement on the basis of salesmanship, not on the basis of owning our source of . . . outlets for cement.” (Tr.617) The official of this company who had experience with vertical integration in other markets found that (1)... we were forced to go longer distances to market our cement to supplant the barrels that we had lost through acquisitions.” (Tr. 616.) 241. In building its Orange, Texas, cement plant, Alpha counted on the New Orleans area as an essential market. (Tr. 611.) Foreelosure from selling to the three large ready-mix concrete companies in the New Orleans market, Radcliff because it sells shell to Ideal and in turn purchases Ideal cement; Louisiana Industries because it is integrated with Texas Industries; and loan agreements between Lone Star and Jimco, Inc. (CX 124A-U), influenced Alpha in withdrawing from the New Orleans market (Tr. 618-15) and the elosing down of a terminal which had cost the company $700,000 OKC COKP. AND UOKLAHUMA LAND AND CATTLE UU. L4U0 1342 Initial Decision to build in 1964.. (Tr. 607.) The acquisition of Jahncke by OKC adds to this foreclosure and the prospects for a new company entering the New Orleans market would not be good. “We felt that we were precluded from selling to an extent in the New Orleans market, and the same would be true if any new company came in.” (Tr. 615.) 249. At the time Dundee built its Clarksville, Missouri, plant, it had made studies to determine desirable markets for the consumption of cement. New Orleans was considered in this category. (Tr. 631.) With the acquisition of Jahncke by OKC, it is much less desirable, “Because of the fact that you basically are foreclosed from a. substantial part of the market, in the Jahncke situation, and the others you inquired about one way or the other we are foreclosed from selling.” (Tr. 634-35.) Jahncke, purchasing over 400,000 barrels of cement, represents a very substantial customer, a very substantial portion of the New Orleans market from which Dundee is foreclosed. (Tr. 635.) Dundee believes that selling ready-mixed concrete is a local business best understood and best run by local people. (Tr. 635.) An integrated cement company has an advantage over a nonintegrated producer because the integrated company has a“... guaranteed outlet for his product, which is economically attractive to a cement corporation which required large volumes of continuous production to be profitable.” (Tr. 636.) 243. Dundee has experienced other situations in Memphis, Tennessee, and Kansas City, Missouri, where it was foreclosed “very substantially, if not entirely” because of vertical integration. (Tr. 636— 87.) 244. Mr. Rentzel, the former president of OKC, is also against vertical integration between portland cement producers and readymixed concrete preducers. He believes that a ready-mixed concrete company is the “. . . kind of a business that could be run by local people at a profit... . That in general, ... [there is] not sufficient profit volume for a large company... .” (Tr. 383.) When Mr. Rentzel was employed by another cement producer, Martin Marietta, that company acquired a ready-mixed concrete company to prevent a competitor from acquiring it. If Martin Marietta had not done this, a “substantial disruption” would have taken place in the market. The acquired ready-mixed concrete company was eventually resold to the original owners. (Tr. 384.) 245. Mr. Shilling, president of Ideal Basic Industries, Inc., also testified that his company at one time purchased a ready-mixed concrete producer to avoid being foreclosed from that particular customer. (Tr. 671-72.) Ideal is against vertical integration be- £67-207—73-—90 1406 =... . FEDERAL TRADE COMMISSION DECISIONS Initial Decision 77 FTC.

cause “. . ..No..1; we don't think we should be in competition with them ready mixed concrete companies]. And No. 2, we don’t think we could offer any better product to the public than ‘the local people could, and. we don’t think we could offer any better service... .” (Tr. 670-71:),.:

246. The acquisition of Jahncke may thus prevent the prospect of new entries into the New Orleans area portland cement market. (Tr. 615, 634-35, 657.) .

247. The effect of the acquisition of the stock of J ahneke by OKC may be. to: substantially lessen competition in the sale of portland cement in the New Orleans area.

B. Ready y-Mined Concrete 1. M. arket Structure 248.: During the period 1967-1968, the New Orleans area was served by 19 ready-mixed concrete firms. Jahneke, the leader,. accounted for approximately 20% of the total sales of New Orleans area firms in each of those two years. The four leading firms, during this period, accounted for nearly 609% of the total sales by all New Orleans area ready-mixed concrete firms.* 249. Since 1968, three of the firms have gone out of business, Dixie Conerete, Inc.; Nash Mullikin Materials, Inc; and Tiger Concrete Co., Inc. Two of these companies, Lakeview Concrete, Inc., and P&W Concrete Co., are not considered competitors because they are on the other side of Lake Pontchartrain from New Orleans, which is outside “our market.” (Tr. 827-28, 920; CX 105, p. 32; Tr. 889. 898, 930.) 2. Market Conditions and Competitive Effects of the Acquisition 250. Ready-mixed concrete companies obtain business by offering favorable prices, good service, and prompt delivery. Other factors being equal, purchasers of ready-mixed concrete will buy from the producer who offers the best price per cubic yard. (Tr. 725-26, 756- 57, 778, 807, 823, 841, 556, 867, 879, $95, 904, 916, G28, 946, 956.) A reduction of 25 cents or 50 cents in the price of a cubic yar nd of concrete definitely makes a difference in obtaining a job. (Tr. 823.) 251. There is opinion testimony to the effect that the acquired ready-mixed concrete company could be used as a “dumping ground for cement.” The profit would be coming back to the cement company because it is just operating at a break-even point on the readymixed concrete operation. The independent. ready-mixed concrete [*See chart on p. 1407 infra.] VEY VUE A8anee Usramadauinse aesaaire sear Use ees UUs leave 1342 Initial Decision Sale of ‘ready-mixed concrete, in thousands of cubic yards, by producers in the New Orleans area.and. the percent sold by each to the.total sold by. all producers for the years 1967-1968. .

1967° Se hs 1968 " Ready-mix company . . (000) Cubic’: Percent (600) Cubic Percent yards sales of total yards sales of total Carlo Ditta, Ine...---....-----.----.---------- eee 125 10. 23% 121 9. 76% Dixie Bldg. Mtls. Co., Inc. 32 2. 62 32 2.68 Dixie Concrete, Inc__...... 20 1. 64 23 1.85 Dowdy Conerete Co., Inc. _.----------- ee ne eee eee 14 1.13 Drake Concrete Co., Inc. 52 4, 25 : 53. - 4,27 Durock, Inc_.- 18 1.47 31 2. 60 Jacat Corporati 35 2. 86 32 2. 58 Jimeo, Inc_.-.- 213° = 17,43 "+ 206 16. 61 Lakeview Concrete, Inc_._--.---_.- _ 38. 3.11. ; 18 1.45 Louisiana Industries-Div. Texas’ Ind So 108. 852° 155 12, 50° Nash Mullikin Mtls., Inc.._...--.---- 30 2.46 12 0.97 Owens & Son, Inc_. : . 37 “3.08 _ 37 2.98 - Peter Judiin, Inc_._.--.---------,--------- 2 -- . 19 2165 17 _ 1.37 P & W Concrete Co ne ne eee ere 10 0. 81 Radcliff Mtls., Inc_._- . 104 _ 851 - 91 7.34 Ready-Mix Conerete, Inc. g2 0.7 7 TBBE. -. 101 815° Standard Mtls., Inc........-.-..-----.-- ; 20 1.64 ee) 1.53 Tiger Mix Concrete Co., Inc___--..--2--.- Oo 31s 254 31 2. 60 Jahneke Service, Inc....-...--..-.----------2-2--- _ 252 - 20. 62 237 19, 11 be 2 re 1,222 100. 00% 1,240. 100. 00% . Top. Four Companies Jalineke Service, Inc_...-....---------2----------e 252- 20. 62% Jimeo, Inc__...--.-. 213 © 17.43 Carlo Ditta, Inc__.__..//22222222-2- 125 10. 23 Louisiana Industries-Div. Texas Ind - - -- 104 8 51 0 in 64C«BG, 79% Total All Other Companies-_.._...-.----- 528 43. 21% Top Four Companies. : ; oo, Jahneke Service, Inc_--..-: 237 19.11% Jimeo, Inc. ...-2.2 2-2 en on ee ee 206 16. 61 Louisiana Industries-Div. Texas Ind... .-__.--2-2 22-2 2-0 ee teen ut 155 12. 50 Carlo Ditta, Inc._...-..2----- 22-22-22 - 22 eee en en eee 121 9,76. Total. -..-. 22-2 o eon eee 719 57. 98% Total All Other Companies___._....-..-2------0eeeeeeeeeeeeeeee ene 521«D. 02% (CX 83.) company cannot operate at a break-even point; it must: make a profit, and the ready-mixed concrete producer's receipt of a reduction in price for its portland cément would result in a corresponding reduction .in. that producer’s total cost for producing ready-mixed concrete. Depending upon the size of such a reduction, the savings in the cost could be considerable. (‘Er. 830-31, 871, 847.) 252. OKC’s acquisition of Jahncke has caused at least one New Orleans area ready-mixed concrete company to consider affiliating with a portland cement company. (Tr. 959.) Another operator stated that since the acquisition of Jahneke by OKC, he would consider getting out of the ready-mixed concrete business entirely. (Tr. 861.) 253. OKC’s acquisition of Jahncke may tend to substantially Initial Decision V7 ETC.

lessen competition or tend to create a monopoly in the production and sale of ready-mixed concrete in the New Orleans area by conferring upon the acquired company a decisive competitive advantage over its nonintegrated competitors and by raising barriers to entry into the production and sale of ready-mixed concrete in the New Orleans area.

C. Shell 1. Geographic Market 254. The geographic market in which counsel supporting the complaint contend the shell acquisition should be judged is that area within a 100-mile radius of New Orleans. This is not an entirely satisfactory area from the standpoint of collecting statistics because one of the shell dredgers in the area sells a large portion of its shell beyond the area and because another one that dredges outside this area sells in it, but it is as realistic an area as any in which to appraise the probable effect on competition, and it is the area where the effect on competition would be expected to be the greatest. 255. The four companies operating in the area within 100 miles of New Orleans dredge the bulk of their shell from two locations, Lake Pontchartrain located near the city of New Orleans and the Atchafalaya Basin located in central Louisiana along the Gulf Coast. (Tr. 784-85, 966, 988, 1003-04.) The sales in cubic yards, made in the New Orleans area by these four companies are as follows:

Company 1967 1968 Ayers Materials Co 1, 178, 196 1, 257, 883 Jahneke Service, Inc --- --- 1, 349, 474 1, 572, 622 Louisiana Materials, Inc. 1, 832, 457 1, 686, 783 Radcliff Materials, Inc 2, 356, 400 2,117, 706 0) | ee 6, 716, 527 6, 634, 994 These figures do not include the small amount of shell sold by Lake Charles Dredging and Towing Company, Inc., in Morgan City, Louisiana, which is barely within the 100-mile radius of New Orleans. (Tr. 981-82.) Jahncke’s percentage of sales in this area was 20.09% in 1967, and 23.70% in 1968, (COX 89A, 91A, 95, 61A.) 2. Lffect on Conupetition 256. OKC (formerly Oklahoma Cement Company) has always taken all its shell requirements from Jahncke and continues to do OKC CORP. AND OKLAHOMA LAND AND CATTLE co. 1409 1342 Initial Decision so under a long-term supply contract which does not expire until 1974. (CX 22.) 257. Because OKC’s shell purchases are made at a very low price (CX 22) the impact of the foreclosure of OKC’s business on Jahncke’s competitors may be measured in terms of dollar volume of sales. Because the low price at which shell is sold to industrial users, such as OKC and U.S. Gypsum, allows only a small profit margin, the foreclosure is not as significant to the other shell producers as it might otherwise be since they are not as anxious as they might ordinarily be to get the business. (Tr. 1133, 1001-02). 258. Assuming an average price of $2 a yard, which is close to the estimates given by the witnesses, the total dollar volume of sales in 1968 would be about $14 million. (Tr. 1134, 1020, 1002, 978.) 259. OKC’s purchases amounted to $693,859 (492,091 cubic yards at $1.41) (CX 61B, 21Q), which amounts to a percentage of almost 5% of the total dollar volume of shell sold in the New Orleans area.

260. OKC’s major competitors own or control their raw material supply and are thereby protected to a large extent against future price fluctuations and unavailability of raw material. (Tr. 695, 596, 638, 657, 677.) 261. OKC did not, prior to the acquisition, own its supply of raw material, (Tr. 1074.) Although it is mechanically feasible to do so, it would be very costly and difficult to procure limestone deposits for OKC’s New Orleans plant. (Tr. 282-83, 1083-85.) _ 262, An official of Ayers Materials Co., Inc., testified that the acquisition will have no effect on his business because his company is not interested in serving industrial accounts like OKC. Even if OKC’s business was available, Ayers Materials Co., Inc., would not be interested in it. (Tr. 1001-02.) 263. An official of Louisiana Materials Co., Inc., also testified that the acquisition will not affect his business in any appreciable amount. (Tr. 977.) 264. Opportunities exist to expand the market for shell to uses to which it is not now heavily put. These include road base material, such as sand and gravel and soil cement (RX 12-18; Tr. 1131, 1108, 984-85, 995) where shell is now used as a substitute. The prospects of replacing sand and gravel are especially good since the supply of sand and gravel is being depleted. (Tr. 1131.) These opportunities would also include using shell for the cattle and chicken feed business and the rubber, paint, and plastic business. (Tr. 1131.) 265. Since OKC has always bought all of its shell from Jahncke, 1410 . . FEDERAL TRADE COMMISSION DECISIONS . Initial. Decision V7 ETC.

the acquisition will not increase Jahncke’s sales and will, have no effect on concentration.

266. There is no evidence of any prior vertical integration in the shell business.

267. The leases under w which the shell producers presently operate are ¢ exelusiy e. (CX 104.) . a.

The Louisiana Wildlife and F isheries Commission hag the suthority to extend the leases in their present form (CX 104, table following p. 8) and in its recent. report has indicated that it favors the present leasing arrangement. (CX 104, p. 18.) It would appear however, that if the demand for shell outgrows the production, nde ditional competition is. needed, or if for any other reason the Louisiana Wildlife and Fisheries Commission considered it to be desirable to lease rights to additional producers, they proceed to do 269. In the shell business, one dredger merely replaced another, and it appears the newcomer will be able to compete at least as effec tively as the old. .

970. It was not alleged nor was it contended that OKC was & potential ¢ competitor of Jahncke for shell business. 271. It was contended that the acquisition vemoved. OKC asa buyer from a competitive market, gave OKC a cost advantage in the production of cement, and provided it, with the capability and power to regulate the price of cement in the New Orleans market to the ‘Actriment ‘and possible exclusion of its competitors. | It is not believed that OKC’s cost advantage is substantial or that as a result of the acquis ition of Jahneke’s shell business OKC has gained or is likely to gain the power to regulate the price of cement in this market.

972, In view of all the circumstances set forth in the above findings of fact, it is believed that the acquisition and retention of the shell business of Jahnecke by OKC is not likely to have a substantial adverse effect on competition in the shell business, in the cement business, or in the ready-mixed concrete business. Discussion or Somer Preniarnarny Conclusions AND TITE Order Many of the proposed findings of counsel supporting the complaint were either adopted in whole or in part in the above findings of fact or formed the basis for them. Most were those which re- ‘spondents conceded were factually correct. The respondents contend that the relevant section of the country in which this acquisition should be examined is the area to which UKUL UCUNP. AIND UBRWATUIMA UAINY AINY UnLsiun UU. LOAL 1342 - -_Initial Decision OKC’s cement-producing competitors can turn to replace the business allegedly lost and that this area extends on the’ west to north Texas; on the north to Minneapolis, Minnesota; on the east to a line running through Chicago, Illinois, Nashville, Tennessee, and western Georgia; and on the south to the Gulf of Mexico. Respondents concede, however, that there is a definable submarket within this market area that can be measured and that is the area to which OKC’s principal competitors, Ideal and Lone Star, can turn to replace the business allegedly lost by this acquisition. Respondents contend that this submarket is bounded on the west by the Texas- Louisiana line; on the north by a line running through certain -arishes in Louisiana and Mississippi; on the east by Escambia County, Florida; and on the south by the Gulf of Mexico. The hearing examiner rejects this contention and concludes that the relevant market is the metropolitan New Orleans area, as found above and in reaching this conclusion, he has followed the precedents set. by the Commission in several recent cases in this same industry. In these cases certain metropolitan markets, some of which were smaller than the one herein, were found to be the relevant geographic markets in which to appraise the probable effect of the acquisitions. It is concluded herein that the position of counsel supporting the complaint that shell has sufficient peculiar characteristics and uses to constitute ita product line of commerce is sustained by the evidence. Shell is preferred for a few uses; whereas for other uses, the primary consideration is price, and either shell or another product is used. The factor that makes shell a separate market, ora submarket. if calcium carbonate is considered’ as the broad market, is . the lack of availability of limestone in the area surrounding New Orleans where shell is sold. Little limestone is sold in this area because it must be brought from such distances that it is uneconomical for most. uses. One cement. producer, which owns limestone. deposits in Alabama, ships limestone to New Orleans for use in its cement plant. a The findings of fact. that relate to the effect. of the acquisition of Jahncke’s shell business are based upon the proposed findings of respondents, and many of them are adopted in whole or in part. ‘Tt is believed that the evidence does not show the probability of adverse. effects in any line of commerce resulting from the acquisition of the shel] business. . ;

It is also concluded herein that the evidence has sustained the charge in the complaint alleging violation of Section 5 of the Federal Trade Commission Act. It is clear that the two respondents acted Initial Decision VW BTC.

in concert to obtain control of Jahncke. It is inconceivable to this hearing examiner that Oklahoma Land and Cattle Company or the Adams interest, which is considered to be the largest stockholder in OKC, were unaware of the efforts of OKC to acquire Jahncke or that the purchases of Jahncke stock by Oklahoma were not a part of this plan. :

It may be that Mr. Adams had no agreement with Mr. Box regarding the purchase of the Jahncke stock owned by Ideal Basic Industries, Inc., but: someone representing or acting for Oklahoma undoubtedly had knowledge of a plan by which Oklahoma and OKC would gain control of a majority of Jahncke common stock. It thus appears that the order to cease and desist should contain a prohibition relating to this charge. The motion of respondents to strike this charge that was made on the record and argued at some length on July 6, 1970 (Tr. 1023) is hereby specifically denied. Jahncke was engaged in the marine hydraulic dredging business and in the sale of building materials, including concrete products. No showing was made that the acquisition of these businesses was likely to have any effect on any line of commerce. For this reason it appears OKC should not be required to divest the properties used in connection with such businesses.

In considering the divestiture order contained herein, the hearing examiner is convinced that the statement in United States v. du Pont & Co., 366 U. S. 316, 327, contains a clear statement of the law which is applicable to this case. There the Court said: If the Court concludes that other measures will not be effective to redress a violation, and that complete divestiture is a necessary element of effective relief, the Government cannot be denied the latter remedy because economic hardship, however severe, may result. Economic hardship can influence choice only as among two or more effective remedies. If the remedy chosen is not effective, it will not be saved because an effective remedy would entail harsh consequences. This proposition is not novel; it is deeply rooted in antitrust law and has never been successfully challenged. The criteria were announced in one of the earliest cases. In United States v. American Tobacco Co., 221 U.S. 106, 185 (1911), we said:

“In considering the subject ... three dominant influences must guide our action: 1. The duty of giving complete and efficacious effect to the prohibitions of the statute; 2, the accomplishing of this result with as little injury as possible to the interest of the general public; and, 3, a proper regard for the vast interests of private property which may have become vested in many persons as a result of the acquisition either by way of stock ownership or otherwise of interests in the stock or securities of the combination without any guilty knowledge or intent in any way to become actors or participants in the wrongs which we find to have inspired and dominated the combination from the beginning.” 1342 Initial Decision The Court concluded in that case that, despite the alleged hardship which would be involved, only dissolution of the combination would be effective, and: therefore ordered dissolution. Plainly, if the relief is not effective, there is no occasion to consider the third criterion. (Footnote omitted.) Also, as the Commission said in Union Carbide Corporation, 59 F.T.C. 614, 659:

The Act is violated if the forbidden effect or tendency occurs in any line of commerce. And once a violation has been found, the entire acquisition is subject to a divestment order. But total divestiture is not an automatic remedy which must be applied in all cases. The choice of remedies is the Commission’s to be exercised with the goal of restoring and assuring the preservation of healthy competition in the relevant markets. Achieving this goal may on occasion require ordering divestment of facilities unrelated to the line of commerce affected by the acquisition as, for example, where the restoration of the acquired company as a healthy competitior requires that it be kept intact. That situation is not presented by this record. Visking will be an effective and strong competitor in the polyethylene film market although shorn of its sausage casing business.

Jahneke’s successor, even if it has nothing more than a readymixed concrete business, will be a viable competitor and will begin with the: Jargest share of the market. On the other side of the coin, it is not considered that the retention of the shell business by OKC will give it any undue advantage over its competitors, most of whom are nuulti-plant producers.

Since it is believed that in this case a divestiture of the readymixed concrete business of Jahncke will afford complete relief from the probable adverse effect of this acquisition, the order of divestiture is limited to the properties used in that portion of Jahncke’s business, The order prohibiting future acquisitions is not so limited because the acquisition of another shell business would probably affect competition adversely.

CONCLUSIONS OF LAW 1. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and this proceeding is in the public interest.

2. The combination and concerted action by OISC and Oklahoma to acquire the control of Jahncke violated Section 5 of the Federal Trade Commission Act, as amended.

3. The acquisition of the stock of Jahncke by OKC violated Section 7 of the Clayton Act, as amended.

Initial Decision TT EVY.C.

ORDER I It is ordered, That respondents OKC Corp. and Oklahoma Land and Cattle Company, corporations, shall, within six (6) months after the effective date of this order, divest absolutely and in good faith to a purchaser approved by the Federal Trade Commission all of the ready-mixed concrete facilities, including land, vehicles, and all other equipment, together with all additions, replacements, and improvements thereto, that are the pr operty of Jahneke Service, Incorporated, and that have been used in the production, sale, or transportation of ready-mixed concrete.

It It is further ordered, That pending divestiture, respondents shall not make any changes in any of the plants, machinery, buildings, equipment, or other property of whatever description of Jahneke Service, Incorporated, that might impair their market value or their present capacity for the production, sale, and distribution of ready-mixed concrete.

III Lt is further ordered, That none of the properties described in Paragraph I of this order, and required to be divested, be sold or transferred, directly or indirectly, to any person who is at the time of divestiture an officer, director, employee, or agent of, or under the control or direction of OKC Corp. or Oklahoma Land and Cattle Company, or any parent, subsidiary, or affiliated corporation of either respondent, or who owns or controls, directly or indirectly, more than one (1) percent of the outstanding shares of common stock of either of the respondent companies, or any of their parent, subsidiary, or affiliate companies.

As used in this order “person” shall include all members of the immediate families of the individuals specified and the corporation, partnerships, associations, and other legal entities as well natural persons.

Iv lt is further ordered, That commencing upon the date this order becomes final: and continuing for a period of ten (10) years from and after the date of completing the divestiture required by this order, respondents shall cease and desist. from acquiring, directly or indirectly, without. prior approval of the Federal Trade Commission, the whole or any part of the share capital or assets of any 1342 Opinion corporation engaged in the production or sale of ready-mixed concrete or shell within respondent OKC Corp.’s present or future marketing area for portland cement or any acquisition of the whole or any part of the share capital or assets of any corporation that purchased in excess of 10,000 barrels of portland cement in any of the five (5) years preceding the merger.

v lt ts further ordered, That respondents OKC Corp. and Oklahoma Land and Cattle Company, corporations, and their officers, directors, agents, representatives, employees, parents, subsidiaries, affiliates, successors, and assigns, directly or indirectly, or through any corpovate or other device, do forthwith cease and desist from entering into, participating, continuing, cooperating in, or carrying out, or directing or instigating any planned common course of action, course of dealing, understanding, plan, combination, or conspiracy between and among themselves, or between any one or both of said respondents and another or others not parties hercto to acquire, directly or indirectly, the whole or any part of the share capital or other assets of any corporation engaged in the production or sale of ready-mixed concrete or shell.

VI lt is further ordered, That OKC Corp. and Oklahoma Land and Cattle Company shall, within sixty (60) days from the date this order becomes final and at such further time as the Commission may require, submit to the Commission written reports setting forth in detail the manner and form in which they intend to comply, are complying, or have complied with this order. Vil It is further ordered, That respondents shall notify the Commission at least thirty (30) days prior to any proposed change which may affect compliance obligations arising out of this order, such as dissolution, assignment, or sale resulting in the emergence of a corporate successor, and that this order shall be binding on any such successor.

OPINnton or THE COMMISSION OCTOBER 21, 1970 By Drxon, Conumissioner:

On October 17, 1969, the Commission issued its complaint alleging that the acquisition of Jahneke Service, Incorporated (Jahneke), by Opinion 77 E.TAC.

OKC Corp. (OKC) violated Section 7 of the Clayton Act, as -amended. The complaint charged that the OKC-Jahncke union may lessen competition or tend to create a monopoly in the production and sale of portland cement, ready-mixed concrete, shell, and construction aggregates in the New Orleans area market, among others. The complaint also alleged that OKC and Oklahoma Land and Cattle Company (Oklahoma) transgressed Section 5 of the Federal Trade Commission Act in that the two firms conspired to acquire Jahneke.

Following unsuccessful attempts to negotiate a hold-separate protective agreement, pending outcome of the administrative proceeding, the Commission, on May 1, 1970, denied complaint counsel’s motion seeking injunctive relief under the All Writs Act, 28 U. 5S. C. Sec. 1651 (a) (1964), in the Court of Appeals for the Fifth Circuit. But the Commission ordered respondents to notify it 60 days prior to consummation of the sale of Jahncke’s ready-mix business. On June 1, 1970, OKC notified the Commission that it intended to sell the ready-mix facilities of Jahncke within a week’s time. Thereupon the Commission, on June 16, 1970, directed its General Counsel to seek injunctive relief in the Court of Appeals for the Fifth Circuit to prevent OKC from disposing of any of the assets of Jahncke. and from restructuring the company pending the final order of the Commission disposing of the adjudicative proceeding in this matter. The Court of Appeals, tinder the authority of the All Writs Act, granted the injunction for a period of 120 days from July 8, 1970.* The injunction restrains respondents from making any changes in the operation of Jahncke’s busiziess and from selling any of Jahncke’s assets. , The administrative hearings in this matter commenced on June 9, 1970, and. on September 3, 1970, the hearing examiner filed his initial decision. He held that the acquisition violated Section 7 of the Clayton Act. in the portland cement and ready-mixed concrete lines of commerce. He also held that respondents had conspired to acquire Jahneke and hence violated Section 5 of the Federal Trade Commission Act. The examiner dismissed the charge of illegality with respect. to the shell line of commerce.? The matter is now before us on cross appeals of the parties from the initial decision. 1 Federal Trade Commission v. OKC Corp. et al., 5 Trade Reg. Rep. J 73,288 (5th Cir. 1970) [8 S.&D. 12201. ;

2Since Jahneke sold major portions of its aggregate operation in October of 1969, complaint counsel withdrew the allegations concerning this aspect of the case. UKU CUP. AND UKLAHUMA LAND AND CATTLE co. 141 ¢ 1342 Opinion I No dispute exists as to certain facts. They constitute the basis of the following summary :

OKC’s business may generally be divided into production of portland cement and various petroleum products.? The latter are not relevant to this proceeding which is concerned solely with the cement phase of OKC’s operations. The company operates two cement plants: one in Pryor, Oklahoma (with a 2,000,000 barrel capacity), and the other in New Orleans, Louisiana (with a 1,700,000 barrel capacity). The two plants, for the fiscal year ending September 30, 1968, produced 8,400,000 barrels. Lime, which is an essential ingredient in the manufacture of cement, is obtained for the Pryor plant from a company-owned limestone quarry near the site of the plant. As its source of lime, the New Orleans plant uses shell obtained from Jahneke.:

OKC’s net sales from all operations for its fiscal year 1968 totaled $39,208,178; its net income was $2,319,655, and_ its total assests were $41,229,177. The cement operations’ net sales for this period totaled $10,553,437; its net income, $1,649,612, and its assests (attributable to its cement operations) , $38,287,781. — On May 26, 1969, OKC made a public offer, to expire on September 30, 1969, to purchase all outstanding shares of Jahncke. By the time the offer expired, OKC had obtained about 46% of Jahncke’s common stock, which came both from the Jahncke family and respondent Oklahoma.t After that date, OIKC continued to purchase stock so that by December 15, 1969, it owned 88% of Jahneke’s outstanding common stock.

For over 30 years Jahncke has been a ready-mixed concrete producer located in New Orleans. Its other businesses consist of marine hydraulic dredging, which has accounted for approximately 40% of its total revenues since the middle 1960’s, and the production, sale and distribution of building and industrial materials. Included among the latter products are gravel, sand end shell. The sand and gravel are used for Jahncke’s production of ready-mixed concrete; the shell is used in the production of cement. Its concrete operation 3OKC was originally incorporated under the name Oklahoma Cement Company and changed to its present name on January 30, 1967. #On January 7, 1969, respondent Oklahoma purchased 22% of the outstanding voting common stock of Jahneke.. By March 10, 1969, it increased its share of voting stock to 27.9%. In February of that year, Oklahoma’s president purchased additional, undetermined shares of Jahneke.

1418 / EDERAL TRADE COMMISSION DECISIONS Opinion (7 E.T.C.

vonsists of seven operating plants and 41 ready-mixed concrete trucks.

Jahneke’s net sales for all operations totaled $11,476,642 for the calendar year 1968, its revenues were $19,144,696, with a net operating loss of $120,348 but with a net income of $177,231, accounted for by its sale of investment securities. Its current assets in 1968 totaled $6,689,492, and current liabilities, $2,008,287. , Oklahoma is primarily engaged in operating six ranches which breed, stock and sell cattle. The purchase and sale of securities comprise its other principal source of income. Its investment in capital stock amounts to between three million and four million dollars. The company’s total current assests for the year ending December 31, 1968, was $3,046,746; its current liabilities $17,300; and its total assets, $6,208,012. Its net loss from all operations was $10,542. It is the sole and wholly owned subsidiary of Pipe Investment Company, which is engaged primarily in the real estate business in Oklahoma, Texas, California and Florida. I In their appeal from the initial decision, respondents first take issue with the examiner’s delineation of the geographic market within which to test the competitive effects of the acquisition in the portland cement line. The examiner found, in this connection, that the relevant submarket was. the New Orleans metropolitan area, an “area coextensive with the New Orleans Standard Metropolitan Statistical Area (SMSA) established by the Bureau of the Census. This area consists of the Parishes of Jefferson, Orleans, St. Bernard and St. Tammany.

Respondents do not dispute the examiner’s finding as to the existence of a relevant submarket but contend that this market should be extended to cover an area which would include the southern portion of Louisiana and Mississippi, the Pensacola area of Florida to the east, and the Louisiana-Texas border to the west. In arguing that the market should be so extended, respondents rely primarily on the following passage from the court’s decision in U.S.. Steel Corp. v. Federal Trade Commission, 426 F.2d 592, 596 (6th Cir. 1970) : Since the primary impact of the instant acquisition falls upon the customer- ‘supplier relationship between Certified [the acquired ready-mix firm]—which operates almost exclusively in the NYMA [the New York Metropolitan Area] —and its potential suppliers—to whom Certified can practically turn for portland cement, the geographic market can be no broader than the area in which Certified’s potential suppliers can turn if they lose Certified’s business. 1342 Opinion On the basis of this language, respondents would define both the broader market and the submarket by looking exclusively to the geographic area to which portland cement producers which sell to Jahncke can ship their product. .

Respondents have mistakenly concentrated on that part of the court’s decision which referred only to the outer limits of the overall market and have ignored equally significant criteria applied by the court when affirming the Commission’s conclusion that the New York metropolitan area constituted a relevant submarket. The court, in upholding the Commission, necessarily concluded that the area of effective competition is determined not only by the distribution patterns of the seller but also by reference to the area to which the purchasers can practically turn in order to satisfy their needs for a given product.

In defining the market by this application of these criteria, it is important to find what factors determine cement customers’ choice of a supplier. The record shows that in selecting suppliers, purchasers of cement are not influenced by price cuts, since price reductions are generally met by competition, nor are they persuaded by the quality of cement, since cement is generally a homogeneous product. What is decisive is the proximity of the supplier to the customer, since prompt delivery is considered essential in the purchase of cement. To paraphrase the Court in United States v. Philadelphia National Bank, 374 U.S. 321, 828 (1963), the factor of convenience will localize competition among sellers of cement as effectively as high transportation costs in other industries. It is not surprising therefore that principal suppers of cement, with plants or terminals in the New Orleans market accounted, in 1967, for 80.6% of all shipments of cement to the New Orleans metropolitan area, and, in 1968, for 74.4% of all shipments. In this context, it should be emphasized that terminals perform the same economic function as cement plants.

The significance of the customer or demand side of the market. was recognized in United States v. Phillipsburg National Bank, et wd., 899 U.S. 350, 363 (1970). There the Court listed “the location of its [the seller’s] offices” as one of three factors, along with “the places from which it [the supplier] draws its business . . . and where it seeks business,” to consider “in locating ‘the market area in which the seller operates.’”° The Court noted that the two banks seeking to merge had their principal office in downtown Phillipsburg, to- 5To be sure, in some industries where market saturation is undertaken, this factor would not be helpful. Unquestionably that is not the case here. Opinion TT IT.C.

gether with offices in the surrounding suburbs. The Court concluded that the downtown area constituted a relevant market, stating that “although the city is sufficiently small so that there is easy access to its downtown area where the banks have their main offices, the banks found it necessary to open branches in the suburbs because ... that is ‘where the customers are.’ See also Philadelphia Bank, supra, at 358-n. 35.” So too, in this matter, the terminals are clustered around New Orleans since that is “where the customers are” and where these customers are seeking to purchase their cement. Particularly revealing in this regard is the operation of Ideal Cement Co., which has a plant in Baton Rouge, only 80 miles by barge from the New Orleans metropolitan area. Yet, substantially all of its considerable shipments into the New Orleans metropolitan area are made from its terminal located within New Orleans. As found by the hearing examiner, the Standard Metropolitan Statistical Area of New Orleans is defined on the basis of such factors as population, labor force and degree of economic and social integration between and among the parishes in the New Orleans area—the same factors a cement manufacturer looks for when defining a focal point for consumption of a plant’s production. This finding is in accord with our experience in the numerous other vertical mergers in the cement industry® and is amply supported by the record in the instant matter. Testimony of cement manufacturers which sell in the Gulf states, including that of a past president of OKC (Tr. 363, 364), leaves no doubt that suppliers of cement concentrate their sales efforts in the New Orleans area. Typical of this testimony is that of the vice president of marketing for Dundee Cement Company:

Well you generally look for an area of substantial population. There is a relationship between cement consumption and population. ... And you look at °United States Stecl Corp. [1967-1970 Transfer Binder] Trade Reg. Rep. € 18,626 (FTC 1968) [74 I.T.C. 1270]: Ash Grove Cement Co. {1967-1970 Transfer Binder] Trade Reg. Rep. { 18,849 (FTC 1969); Mississinni River Fuel Company [1967-1970 Transfer Binder] Trade Reg. Rep. § 18,801 (FTC 1969) [75 ITC. 818]; Marquette Cement Manufacturing Co. [1967-1970 Transfer Binder] Trade Reg. Rep. J 18,657 [75 I.T.C. 32] and J 18,888 (FTC 1969) [76 F.1.C. 361]; Missouri Portland Cement Co. (1967-1970 Transfer Binder] Trade Reg. Rep. J 18,805 (FTC 1969) ;. National Portland Cement Co. [1967-1970 Transfer Binder] Trade Reg. Rep. 7 17,908 (FTC 1967) [Ti I.T.C. 395]; Lone Star Cement Corp. [1965-1967 Transfer Binder] Trade Reg. Ren. 7 17,581 (FTC 1966) [69 F.T.C. 927] and ¥ 17,828 (FTC 1967) [71 F.T.C. 35]; Lehigh Portland Cement Co. [1965-1967 Transfer Binder] Trade Reg. Rep. 7 17,489 (FTC 1966) ; Ideal Cement Co. [1965-1967 Transfer Binder] Trade Reg. Rep. 7 17,480, 7 17,546 (FTC 1966) [69 F.T.C. 762]; Veras Industries, Inc. [1965-1967 Transfer Binder] Trade Reg. Rep. § 17,891 (FTC 1965) [68 F-T.C. 992]; Permanente Cement Co. [1965-1967 Transfer Binder] Trade Reg. Rep. J 17,222 (FTC 1965) [67 F.C. 334]; American Cement Corp. [1963-1965 Transfer Binder] Trade Reg. Rep. § 16,736 (FTC 1964) (64 F.T.C, 316].

OKC CORP. AND OKLAHOMA LAND AND CATTLE co. 1421 1342 Opinion the type of market to see if it’s an area where a large amount of cement is eonsumed. (Tr. 630.) In determining the geographic market, it is also important to consider where “the effect of the merger on competition will be direct and immediate... . [And] this depends upon ‘the geographical structure of supplier-customer relations.” Philadelphia Bank, supra, at 357. Clearly, the competitive effects of the OKC-Jahneke acquisition center in the New Orleans metropolitan area. As an example, the New Orleans area will support only a certain number of cement sellers. Any significant diminution in the available cement customers in the market may make the market less attractive to those already there (encouraging egress) and to any potential entrants. As a result, for ready-mix firms in New Orleans, fewer suppliers may be available to which they may practically turn. The occurrence of this adverse effect in New Orleans strongly indicates that it is a relevant geographic market. United States v. Pabst Brewing Co., 384 U.S. 546, 549-50 (1966).”

I - Respondents also challenge the hearing examiner’s holding that the effect of the acquisition may be substantially to lessen competition in both the cement and ready-mix lines of commerce. Their principal contention in this regard is that the degree of foreclosure resulting from the acquisition is insignificant. According to respondents, the foreclosure of OKC’s cement competitors attributable to the acquisition was 4.2% in terms of total cement sales in 1967, and 249% in 1968. They further contend that this foreclosure effect. becomes even less significant when considered in light of the absence of any previous foreclosure by vertical integration in this area. There are three basic flaws in respondents’ reasoning. First, it completely ignores the existence of a relevant submarket, #.¢., the New Orleans metropolitan ares. In that market, the foreclosure, when measured by the sales to ready-mix firms, was 28.2% in 1967 and 26.25% in 1968. In terms of the total market for portland cement, the foreclosure amounted to 13.6% and 114% respectively in these two years. Hence, the foreclosure is of even greater dimensions than that demonstrated in U.S. Steed with respect to the New York metropolitan area submarket.

Secondly, even if we apply respondents’ broader market concept, the foreclosure would fall well within the range of percentages held 7 Respondents do not appeal from the examiner’s finding that the New Orieans metropolitan area is the proper geographic market to measure the effects of the acquisition with respect to the production and sale of ready-mixed concrete. 467-207—75 91 Opinion {7 F.T.C.

to be unlawful in U.S. Steel. There the hearing examiner found that the purchases of the acquired ready-mix firm in the years 1962 through 1964 accounted for 1.8%, 2.1% and 1.7% of total portland cement purchases in the broader geographic market. These amounts are far smaller than those which respondents claim are insignificant here.

Thirdly, respondents’ argument that there has been virtually no vertical integration in the New Orleans market is refuted by the record.s The examiner found in this connection that Louisiana Industries (with 8.9% and 12.6% of cement purchases in 1967 and 1968, respectively) is a subsidiary of Texas Industries, Inc., a cement producer with a terminal in the New Orleans market. Radchff (with 9.7% of cement purchases in 1967, and 7.659 in 1968) admits to a reciprocal buying arrangement with Ideal Cement. Ideal purchases shell from Radcliff for its cement production, in turn, Radcliff purchases cement from Ideal for its ready-mix operation. Jimco, Inc. (with 15.56% of all cement purchases by ready-mix companies in 1967, and 15.66% in 1968) is indebted to Lone Star, and, as an apparent consequence of which, it purchases almost exclusively from that cement producer. Similarly, Ready Mix Concrete (with 6.12% of cement purchases, and 6.8%, in 1967 and 1968, respectively) is in debt to OKC and buys virtually all of its cement requirements from that company.

These companies, when Jahncke is included, account for nearly 70% of all portland cement purchases made by the ready-mix firms in the New Orleans area. We are mindful that the foreclosure attributable to the tying of these firms to cement producers is not, except in the case of Louisiana Industries and Jahncke, as lasting as that stemming from ownership. Still, in the instant situation the supplier and customer relationships are such that they tend to discourage entry and to encourage egress by firms not favorably situated inthe market. As to the former, the vice president of marketing of Dundee Cement testified that these relationships have resulted in an effective foreclosure from sales to the ready-mix segment of the market :

Q. With the acquisition of Jahncke by OKC, would you consider the New Orleans market now a desirable market? ;

8 Respondents contend that the total market foreclosure in the New Orleans area of 59% in 1967 and 1.5% in 1968 is de minimis when contrasted to the prior vertical disclosure of 39.6% in U.&. Steel. This comparison between the total foreclosure in the two cases is misleading. Respondents’ percentages of .59% and 1.5% represent the prior total foreclosure in the broader market area in the instant case, whereas the 39.6% figure refers to the prior total foreclosure in the much narrower submarket in the U.S. Steel case, and not to the broader market area found in that case. UBL LUD. AWY VUbuieuivis Beare secre Veneer eee Lk _~ ee 1342 Opinion A. Well, I think the way to answer that is, it is less desirable and certainly much less desirable for the acquisition.

Q. Why would that be? A. Because of the fact that you basically are foreclosed from a substantial part of the market, in the Jahncke situation, and the others [Ready Mix, Jimeco, Radcliff and Louisiana Industries] you inquired about one way. or the other we are foreclosed from selling.” (Tr. 634, 635.) As to the effect of the collective foreclosure on egress from the market, there is the example of Alpha Cement Company, a cement producer which, in October 1969, withdrew from the New Orleans market, even though it had spent a considerable sum (ie., $700,000 in 1964) in constructing a terminal in that city. In the words of its vice president and regional sales manager, “We felt that we were precluded from selling to an extent in the New Orleans market, and the same would be true if any new company came in.” (Tr. 615.) This withdrawal occurred prior to OKC’s acquisition of Jahncke and was the result of a developing trend toward vertical integration in the market—a trend which was greatly aggravated by the Jahncke acquisition. Moreover, it is manifest from testimony of cement suppliers that they will sell in a market only if they find that customers are not tied to individual suppliers. An illustration.of such testimony is that of Mr. Chase of Dundee: Q. Now sir, in your experience with Dundee, has your company come across any situations where it has been foreclosed from markets because of this verti- -eal integration? A. Yes, there are several examples that come to mind. Probably the best ‘examples would be Memphis and Kansas City, where we are foreclosed there, very substantially, if not entirely. Houston is partially substantially closed market. New Orleans certainly is; in part Cincinnati would also fall.in that category. .

Q. Now Memphis and Kansas City, do you recall what your experience was ‘with those two markets? A. Those two markets, of course, were markets which we were not operating in. They were markets we investigated when we first conceived the Clarksville ‘project. And because of their location they were very logical for us. The easiest example, of course, is Memphis, because it’s right on the river, ‘economically very close to Clarksville, and would be a logical place for us to sell our product. But investigation proved that the chances of our selling any ‘substantial amount of cement in Memphis were practically zero. Q. Why was that, sir? A. Because it is a market that was and to a major degree still is, but at that time it appeared to us that it was 100 per cent foreclosed, because of vertical integration. (Tr. 636, 637.) ;

Fence, contrary to respondents’ assertion, we are satisfied that the record fully supports the examiner’s findings as to the probable ‘Opinion WT E.T.C.

consequences of the challenged acquisition in the cement line of commerce.

IV The hearing examiner held that the acquisition may result in a lessening of competition in the ready-mix line by conferring upon the acquired company a decisive competitive advantage over its non-integrated competitors and by raising barriers to entry into the production and sale of ready-mixed concrete in the New Orleans area. Respondents challenge this holding, claiming generally that no competitive advantages will accrue to the vertically integrated firm. This argument has been repeatedly made to, and rejected by, the Commission. Most recently, the court in U.S. Steel, 426 F. 2d at 603, disposed of this contention, as follows: This trend towards vertical integration has made it quite difficult for nonintegrated firms to compete even apart from open-market foreclosure. A vertically integrated cement and ready-mix company has decisive cost advantages over non-integrated competitors. Cement manufacturers are burdened with high fixed costs, as well as significant marketing, shipping and distribution costs. Vertical integration creates a more assured level of plant utilization, an elimination of any significant sales and marketing expenses to one’s own ready-mix subsidiary, and the ability to integrate the storage and distribution facilities of the cement and ready-mix company into a single urban terminal. All of these factors work to lower overall unit costs of integrated vis-a-vis non-integrated concerns. :

However, while unit costs might be used to lower the price of cement to customers generally, they also have the potential of being used as weapons of economic discipline.” This is particularly true when an industry is tending towards oligopoly. In such markets, the handful of leading vertically integrated firms do not engage in general price cutting. Price cuts are used as a more selective instrument: to punish an aggressive marketeer or price-cutter of cement; to woo away a crucial account of a non-integrated concern; or to maintain respective oligopoly shares. United States v. Wilson Sporting Goods, 288 ¥. Supp. 548, 556-557 (NDI11.1968). The “mixed threat and lure of reciprocal buying” was the potential anticompetitive device which condemned the acquisition of Gentry, Inc. by Consolidated Foods. Federal Trade Commission v. Consolidated Foods, supra, 380 U.S. at 593-595, 85 8.Ct. 1220, 14 L.Ed. 2d 95. Similarly, in the concentrating cement and concrete industries, the decisive cost factors of vertical integration create a “mixed threat and lure:” a “threat” insofar as the non-integrated firms must remain well-behaved or suffer the consequences; and a “lure” in that the well-behaved firms will not be subject to serious price-cutting. Such market conditions push the remaining non-integrated firms toward vertical integration. (426 F.2d at 603.) “The unsupported possibility of lower prices can not immunize this acquisition. As the United States Supreme Court held in F7'C v. Procter &€ Gamble Co., “[pJossible economies cannot be used as a defense to illegality.” 886 U.S. 568 at 580, 87 S.Ct. 1224 at 1231, 18 L.8d.2d 303.

UBL UCUNP. AND UBLAMUIMA LAINY ANU ULALLUN UU. iti 1342 Opinion We are satisfied from this authoritative ruling, and from our review of the record in this case, that the examiner’s findings are factually and legally correct.

Vv The principal argument made by counsel supporting the complaint in their appeal from the initial decision is addressed to the relief ordered by the hearing examiner. With respect to this aspect of the case, the hearing examiner concluded that the ready-mix unit of Jahneke, after being severed from the other Jahncke divisions, would be a viable competitor and would begin with the largest share of the market. He further concluded that a divestiture of the readymixed concrete division of Jahncke would afford complete relief from the probable adverse effect of the acquisition. Complaint counsel maintain that the ready-mix business will remain viable only through the support of the remaining portions of Jahnecke’s business, and that complete divestiture is therefore necessary. They argue, in this connection, that the ready-mixed concrete business in New Orleans is marginal; that Jahneke’s ready-mix business in particular bas been unprofitable; that it has remained a viable competitor because it could depend upon the resources of the profitable portions of the Jahneke operation; and that the viability of Jahncke’s ready-mix business will continue to depend upon the resources and revenues of its other operations. Respondents, on the other hand, dispute the factual basis of this contention.® That part of the initial decision which deals with this important issue is not helpful. No findings are made to support the examiner’s conclusions nor are we provided with the benefit of his reasoning by which he arrived at these conclusions.

The record shows that Jahncke has been an independent and successful New Orleans enterprise for almost 100 years. In addition to being the largest purchaser of cement and seller of ready-mixed concrete, it was engaged in lucrative marine hydraulic dredging and shell dredging, the manufacture of concrete products, such as concrete pipe, and the sale of building materials. (CX 51, 52 and 53.) There is no dispute that this broadly based operation was a strong com- ° Respondents also maintain that it is inconsistent to argue that the acquisition will probably give OKC an unfair economic advantage in the ready-mix business over its competitors, and at the same time to urge the Commission to reestablish Jahncke with the same advantages. The answer to this is, of course, that the advantages derived from the Jahneke-OKC union are likely to be substantially greater than those derived from control over dredging, shell and the other operations of Jahneke. Moreover, Section 7 of the amended Clayton Act is concerned with adverse competitive effects resulting from the acquisition and not from internal expansion. Opinion TT W.T.C.

petitive force in each of the various lines of its business, including the: ready-mix line. ;

Despite the losses the company incurred in the sale of ready-mixed concrete in recent years, it remained the largest firm in the field, and apparently could maintain that position because of the availability of the revenues from its other operations which compensated for the reverses suffered by the ready-mix phase of its business. Respondents. do not question that the Jahncke enterprise was a strong, viable organization, commanding substantial economic resources. Jt is also apparent from the record that in recent years the readymix business in the New Orleans area has been a narrow-margin operation (Tr. 738, 736), and that Jahncke has sustained losses throughout this period. Indeed, the executive vice president of OKC, Mr. D. E. Baxter, testified that Jahncke’s ready-mixed concrete business was a “loss operation.” (Tr. 1068.) Mr. H.S.G. Verlander, a former treasurer and vice president of Jahncke, also gave testimony in this case and, on the basis of his long experience with the company, expressed the opinion that the ready-mix unit could not stand alone. In contending that less than complete divestiture is required, respondents rely on the testimony of Mr. Robert D. Brown, president of Jahncke Service since the fall of 1969. Mr. Brown testified that in his opinion the ready-mix operation, if severed from the Jahncke organization, could be turned around and become a profitable operation. He testified first of all that the bookkeeping methods utilized by Jahncke exaggerated the losses sustained by its ready-mix business. Secondly, he stated that costs could be pared by reducing sales personnel, by improving maintenance of equipment, and by introducing other efficiencies in the operation of the business. Through these» changes, he predicted cost savings of approximately $400,000 annually. (Tr. 1125-1128.) ;

In. reviewing Mr. Brown’s testimony, we note that he does not address himself to the root cause of the loss performance of Jahncke’s ready-mix unit. The testimony of officials of the second and third largest ready-mix firms in the New Orleans market (Tr. 788, 765), as. well as that of Mr. Herbert Jahncke, Sr. (Tr. 424), establishes beyond doubt that the source of the financial difficulties of members of this industry was the severely depressed price level of ready-mixed concrete in the New Orleans metropolitan area. Conditions were such that three ready-mix firms were forced to shut down their operations. Hence, it is clear from the record that the cure for Jahncke’s problems is not a reorganization of the ready-mix unit, which is a speculative projection on the part of Mr. Brown, but an improvement of. 1342 Opinion the conditions in the construction industry in the New Orleans metropolitan area. Moreover, we are not told whether the annual cost savings which Mr. Brown expects to realize would offset the losses suffered by Jahncke’s ready-mix business.

From a review of the record we find that there is an insufficient. basis for concluding that the ready-mix unit of Jahncke, if severed from the entire enterprise, could survive as a viable, independent competitive entity. And, if it could not, the competitive consequences of permitting the sale of the ready-mix unit by itself become quite obvious. In the cement line, we may be faced at some date in the future with the same foreclosure as that which would follow from OKC’s retention of the ready-mix business. Whether the business may be forced to close, or whether it may enter into some arrangement with a cement supplier, a very substantial portion of the total market for portland cement may be foreclosed in the New Orleans area. If this would occur, the remaining open market would be of insufficient: size to attract additional suppliers to the New Orleans market.2° Thus the same entry-discouraging effects of the original acquisition may emerge at some future time. In sum, we are convinced that competition would suffer from the elimination of Jahncke as an independent ready-mix producer in the New Orleans market. We know from the long history of this organization that it is capable of maintaining its independence in the readymix line if it remains unchanged. On the other hand, we are far from persuaded that this would be true if the ready-mix business would be severed from the remainder of the enterprise. Consequently, we cannot agree with the hearing examiner that the market structure would be adequately restored by divestiture of only the readymix unit. The holding that partial divestiture would afford complete relief is at best conjectural. It is therefore rejected. Our conclusion that the entire Jahncke enterprise should be preserved is in keeping with one of the principal goals of Congress in. enacting the Celler-Kefauver amendment to Section 7 of the Clayton Act. Congress emphasized at that time the importance of protecting mdependent local enterprises from being taken over by large interstate organizations. Brown Shoe Co. v. United States, 370 U.S. 294 (1962); United States v. Aluminum Co. of America, 377 U.S. 271 (1964) ; United States v. Von’s Grocery Co., 384 U.S. 270 (1966). 1 As we have described above, the second, third and fifth leading ready-mix firms in the New Orleans area are tied in one form or another to cement suppliers. Jahncke, on the other hand, is the only one of the top three with no financial arrangment with any cement supplier and so has been capable of maintaining its integrity as a truly independent, local enterprise, Final Order 77 ETC.

vi Two other issues have been presented in the appeals from the initial decision. Respondents have taken exception to the examiner’s holding that there was a conspiracy between OKC and Oklahoma Land and Cattle Company to acquire Jahncke, and counsel supporting the complaint contest the examiner’s finding that the acquisition of the shell portion of the Jahncke enterprise may not result in a substantial lessening of competition.

We agree with respondents that the conspiracy charge should be dismissed. In view of our disposition of the case, however, we do not reach the issue raised by counsel supporting the complaint. Because we order complete divestiture, a determination of the correctness of the examiner’s holding as to the probable competitive consequences in the shell line of commerce is not necessary. To the extent indicated herein, the appeal of counsel supporting the complaint is granted. With the exception of our ruling on the conspiracy issue, the appeal of respondents is denied. Our order providing for appropriate modification of the initial decision is issuing herewith.

Commissioner MacIntype did not participate. Commissioner Den-. nison did not participate for the reason oral argument was heard prior to his taking oath as Commissioner, Finau Orver This matter having been heard by the Commission on cross-appeals of respondents and counsel supporting the complaint from the initial decision of the hearing examiner, filed September 8, 1970, holding that the complaint charging respondents with violation of Section 7 of the Clayton Act, as amended, and Section 5 of the Federal Trade Commission Act had been sustained by the evidence and containing an order to cease and desist. The Commission has determined that the appeals of respondents and counsel supporting the complaint should be granted in part and denied in part, and that the findings of the hearing examiner should be adopted to the extent consistent with the opinion accompanying this order. Other findings of fact and conclusions of law made by the Commission are contained in that opinion. For the reasons therein stated, the Commission has determined that the order entered by the hearing examiner should be vacated and a new order issued by the Commission as its final order. Accordingly, OKU LCunr. ware L 1342 Final Order I It is ordered, That respondent, OKC Corp., a corporation, and its officers, directors, agents, representatives, employees, subsidiaries, affiliates, successors and assigns, within six (6) months from the date this order becomes final, divest, absolutely, subject to the prior approval of the Federal Trade Commission, all direct and indirect legal and equitable interest in the stock, share capital, rights and privileges, tangible or intangible, and any other form of ownership acquired by respondent, as a result of the acquisition of the stock of Jahncke Service, Incorporated.

m It is further ordered, That pending divestiture, respondent shall not make any changes in the corporate structure, or in any of the plants, machinery, buildings, equipment or other property of whatever description of Jahncke Service, Incorporated, which might impair its present capacity for the production, sale and distribution of the business operations of Jahncke or their market value. TIt It is further ordered, That none of the stock, properties, rights and privileges, described in Paragraph I of this order and required to be divested, be sold or transferred, directly or indirectly, to any person who is at the time of divestiture an officer, director, employee, or agent of, or under the control or direction of OKC Corp., or any parent, subsidiary or affiliated corporation of respondent, or who owns or controls, directly or indirectly, more than one (1) percent of the outstanding shares of common stock of respondent or any of its parent, subsidiary or affiliate companies. As used in this order “person” shall include all members of the immediate families of the individuals specified and corporations, partnerships, associations, and other legal entities as well as natural persons.

Iv It is further ordered, That commencing upon the date this order becomes final and continuing for a period of ten (10) years from and after the date of completing the divestiture required by this order, respondent shall cease and desist from acquiring, directly or indirectly, without prior approval of the Federal Trade Commission, the whole or any part of the share capital or other, assets of any corporation engaged in the production or sale of ready-mixed concrete or 1430 - FEDERAL TRADE COMMISSION DECISIONS *! Final Order TT Y.T.C.

concrete products within respondent’s present or future marketing -area for portland cement.or which purchased in excess of 10,000 bar- _rels. of portland.cement in any of the five (5) years: preceding the -merger.

Lt is further ordered, That’ the complaint be, andthe same hereby is, dismissed as to respondent Oklahoma Land and Cattle Company. : Ltdis further ordered, That the hearmg examiner’s initial decision, as modified, be, and. it hereby is, adopted as the decision. of the ‘Commission:

It is further ordered, That respondent OKC Corp. shall, within sixty (60) days from the date of service of this order and every sixty (60) days thereafter until divestiture is fully effected, submit to the Commission a detailed written report of its actions, plans, and ‘progress in complying with the divestiture provisions of this order, ‘and fulfilling its objectives. All reports shall include, among other things that will be from time to time required, a summary of all con- ‘tracts and negotiations with potential purchasers of the stock, assets, properties, rights or privileges to be divested under this order, the identity of all such potential purchasers, and copy of all written communications from and to such potential purchasers. It is further ordered, That respondent shall notify the Commission at least thirty (30) days prior to any proposed change which may affect compliance obligations arismg out of this order, such as dis- -solution, assignment or sale resulting in the emergence of a corporate successor, and that this order shall be binding on any such successor. - _ Commissioner Macintyre did not participate. Commissioner Den- ‘nison did not participate for the reason oral argument was. heard prior to his taking oath ag Commissioner.