Diamond Crystal Salt Co

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IN THE MATTER OF DIAMOND CRYSTAL SALT CO.

ORDER, OPINION , ETC. , IN REGARD TO THE ALLEGED VIOLATION OF SEC. 7 OF THE CLAYTON ACT Docket 7323. Complaint, Dec. 1958-Decision, Dec. 9, 1969 Order reopening an earlier ordey, 56 P. . 818, dated February 4 , 1960 which prohibited a major dry salt producer from making certain acquisitions, and modifying said order to permit the respondent to acquire stock in a Panamanian corporation which has title to salt deposits in Chile.

, DIAMOND CRYSTAL SALT CO. 879 878 Opinion of the Commission OPINION OF THE COMMISSION DECK\lBER 9, 1969 In January 1957, the respondent herein, a major dry salt producer, acquired control and ownership of another substantial dry salt producer, the Jefferson Island Salt Company. On December 2, 1958 , the Commission issued a complaint against respondent charging that the acquisition violated Section 7 of the Clayton Act. On November 16, 1959, there was submitted to the hearing examiner an agreement between respondent and complaint counsel providing for entry of a consent order to cease and desist and to divest. The hearing examiner accepted the proposed order in an initial decision which was adopted as the decision of the Commission on February 4, 1960. In addition to the provisions for divestiture and other provisions, the order prohibited respondent from acquiring for a ten-year period "any * * * interest in any corporation, in commerce, engaged in the business of producing and/or distributing salt in any form * * * ." , Respondent now petitions the Commission to reopen this proceeding and modify the order so as to permit respondent to acquire a substantial interest in Compania Minera Santa Adriana, S. A. (Comisa), a Panamanian corporation, which "as its only significant asset holds mayketable title to a vast, but largely undeveloped, rock salt deposit near Patillos, Chile.

Respondent' s request was placed on the public record and each salt producer in the L'united States was notified of the request by direct mailing. One of these producers, the Cayuga Rock Salt Company, Inc. (Cayuga), a competitor of respondent, has protested the proposed reopening and modification and requested that respondent's petition be denied. Complaint counsel, however does not oppose granting respondent's request and has treated Cayuga s objections as not controlling. We agree with the result reached by complaint counsel; however, we believe that the objec- I This provision, contained in paragraph (4) of the order, was modified by the Commission on ,July 11 , HJ61 , to permit respondent to make certain Cicr)uisitions the details of which are not relevant to the pr ent petition, 2 Respondent s letter to the Commission dated September 23 , 1969 , receiv€d by the Commission on October 1 , 196!J, and treated herein as resjJondent s petition, p. 1. Specifically, respondent wishes to aC(luire " at a cost of $3. 00 per share, 189 000 shares of the authorized but unissued common capital stock" of CornisR, which amounts to appJ' oximately 42 percent of the company s then issued Rnd outstanding capital stock. Respondent aim intends to purchase, at par, up to $750 000 worth of Comisa s convertible, subordinated d"bentures. Opinion of the Commission 76 F. tion raised against the request warrants a statement by the Commission of the reasons for its decision approving the request notwithstanding Cayuga s objection.

Respondent is the third largest American salt company. However, it controls only one rock salt (as distinguished from evaporated salt) production facilty; this facility is located in Louisiana. Respondent alleges, and complaint counsel does not dispute, that it is unable, in these circumstances, to supply significant amounts of rock salt to customers located in the East Coast and Great Lakes areas of the United States. These markets are served, however, by respondent' s hvo larger competitors International Salt Company and Morton Salt Company, which own or control nearby rock salt production facilities. To enable respondent to compete more effectively in the East Coast rock salt market, respondent has consummated a rock salt requirements contract with Comisa under which respondent has agreed to purchase up to 1. 95 millon tons of rock salt produced at Comisa Chilean mine for resale along the East Coast of the United States.' Respondent's interest in the Comisa mines is not, however, restricted to its desire to compete more effectively in the East Coast and 2Iiidwestern markets. According to respondent, the absence of any rock salt deposits west of Kansas has heretofore been a bar to distribution of rock salt (as opposed to solar salt) to West Coast markets. Respondent believes, however, that: The great and ever increasing demand for snow and ice removal rock salt in the eastern and mid western states of the United States leads Diamond Crystal to believe that public acceptance of rock salt for this purpose on the west coast could be won if an intensive marketing effort was attempted. However, the time period required to obtain such market acceptance-and the costs and other risks involved impel Diamond Crystal's management to the conclusion that the effort should not be made unless an equity position in Comisa can first be obtained.

In short, acquisition by respondent of an equity interest in Comisa would provide respondent with certain access to Chilean 3 Petition. p. 2.

4Id. at p. 3.

ld., at p. 5.

DIAMOND CRYSTAL SALT CO. 881 878 Opinion of the Commission rock salt supplies which would in turn enable it to become a more effective competitor in the East Coast market and open up the West Coast market for the first time to rock salt in competition with other products.

On the basis of the facts now before the Commission, we fmd no substantial objection to respondent's proposed acquisition insofar as it wil enable respondent to distribute its product for the first time to the West Coast market. The objection which has been raised to respondent's petition relates to the East Coast market. At the present time there are, according to respondent only three major suppliers of rock salt to the East Coast market !International Salt, :\Iorton Salt, and respondent) and three lesser suppliers (Cayuga, Cargil, Inc., and Carey Salt Company). 0 Cayuga has objected to respondent's petition on the ground that if respondent is able to "bring in and ship Foreign salt into (the) Eastern Seaboard at such low costs " * * Cayuga " * * will be faced with serious loss of tonnage to our Eastern A lantic Cuast destinations." Cayuga goes further in its claim and states that if respondent engages in an anticipated "extended sales effort" on the basis of its low cost foreign salt, Cayuga will be forced to discontinue mining rock salt; (sick as we can not meet these low costs." ; In view of the small number of participants in this particular market and the apparently high concentration which prcvails in the dry salt industry generally,' such a claim warrants careful consideration . The possible elimination of one out of six participants in a given market is a factor which must be given weight in assessing the legaliy of a transaction which might lead to such a material reduction in the number of market forces. The Commission has, accordingly, weighed the potential risk to Cayuga incident to its granting respondent' s request and concluded that, notwithstanding that risk, respondent' petition should be granted.

51d. at p. 6. It is worth noting the allegation jll paragraph five (a) of the Commbsion complaint herein that "The dry salt industry in the United States is highly concentrated in that the six largest dry salt producers, including Diamond Crystal and Jefferson Island, shipped in excess of threefourths of the total dry salt sold or Ilsed in the l;united States in 1955 . . * 1 Letter from Cayuga to the Commission dated October 2H, 1%8. CayuVt also aIJparc!,tly has requested the Commission to undertake " an early review of present ever increasing imports of salt" into the United States, However, as complaint counsel suj:xests in the answer to respondent' s petition, the desirability vel non of governmental regulation of salt imports is a matter which goes beyonrl the issues raised by respondent' s petition and is not relevant to those issues or to any concern of the Commission in the present matter. See note 6 supra.

Opinion of the Commission 76 F. The gist of Cayuga s objection is that if respondent's petition is granted, respondent will be assured a low cost supply of foreign rock salt which will enable respondent to compete more effectively in the East Coast to the possible injury of Cayuga participation in the market. K 0 claim is made that respondent is seeking to obtain (or has the power to obtain) exclusive access to low cost rock salt. Indeed, Cayuga has provided the Commission with a table of imports of rock salt into the Eastern market for the past three years which indicates that the sources for foreign rock salt are numerous and that respondent is only one of many companies with access to imported salt in significant quantities. Moreover, there is nothing in the record before the Commission to suggest that, by obtaining an equity interest in Comisa, respondent wil be foreclosing its competitors from a substantial share of any substantial market; see Brown Shoe Co. v. S. 370 v. E. I. dupont de Nemou1' S. 294, at 323-324 (1962); S. 353 U. S. 586, at 595 (1957). The rock salt deposits controlled by Comisa are, at the present time, largely undeveloped and respondent' s proposed purchases will provide Comisa with the additional capital needed to exploit these deposits." In short, except for Cayuga s expressed fear that it may be unable to withstand the rigors of a legitimate competitive effort by respondent and may therefore be eliminated as a competitor in an already concentrated market, every aspect of the proposed transaction suggests palpable benefits to the competitive process. It will permit the development of a largely unexploited resource; enable respondent to compete more effectively in the East Coast market and enter a wholly new market on the West Coast; and it will have no foreseeable substantial adverse competitive impact on the production or distribution of rock salt or any other type of salt in the United States.

Against these benefits, the possible elimination of Cayuga from the marketplace, while warranting the consideration of the Commission, cannot be a decisive factor since it \vould spring, by Cayuga s own account, from wholly lawful competitive factors. Cauyga s objection to respondent's petition cannot be sustained. No other reason appearing why respondent' s petition should be denied, it is granted.

Petition, p. 2.

DIA:IOND CRYSTAL SALT CO. 883 878 Order Proceeding and Modifying Previous Order ORDER REOPENING PROCEEDING A:'D MODIFYING PREVIOUS ORDER The respondent having filed a petition on October 1 , 1969 which requests the Commission to reopen the proceeding herein and to modify its order so as to permit the respondent to purchase 189 000 shares of the authorized but unissued common capital stock of Campania Minera Santa Adriana, S. , a Panamanian corporation, along with up to $750 000 of said company convertible subordinated debentures; and The Commission having issued its decision in this proceeding on February 4 1960 (56 F. C. 818J, containing its order to divest and to cease and desist, which order, among other things and subject to an exception contained in a modification of the order made by the Commission on July 11, 1961, prohibits the respondent from acquiring at any time during the ten years succeeding February 4, 1960, any interest in any corporation, in commerce engaged in the business of producing and/or distributing salt; and It appearing, for the reasons stated in the accompanying opinion and from the facts stated in the petition and in the answer filed by complaint counsel, who join in the request that the petition be granted, that there is no reasonable probability that any proscribed anti competitive effects wil result from the proposed purchase, and the Commission having further determined that the public interest win be served by reopening this proceeding solely for the purpose of altering and modifying the order so that it shan not prohibit the respondent from effectuating such acquisitions:

It is oTdeo' That this proceeding be, and it hereby is reopened and that Paragraph (4) of the order to divest and to cease and desist be, and it hereby is, modified to read as follows: ( 4) It is i"rthe,' ordered That for a period of ten years from February 4, 1960, the respondent shall cease and desist from acquiring, directly or indirectly, through subsidiaries or otherwise, by merger, consolidation, or purchase, the physical assets, stock, share capital of, or any other interest in any corporation, in commerce, engaged in the business of producing and/or distributing salt in any form, specifically including salt in a dry state produced by any dry mining method, or produced by any evaporation method, and salt in brine: Provided, how(;?'e1' That the respondent shall not be prohibited hereby from effectuating the proposed purchase of the assets referred to in the fn' st paragraph of the Commis-