«MIGAt-ftNfl-ENGieilNG
NEWS
the newsmagazine of the chemical world VOLUME 3 7 , NUMBER 41
|
OCTOBER 12, 1 9 5 9
It's a Victory for Du Pont Judge LaBuy rules that Du Pont can keep its 6 3 million shares of GhA stock but must lose the voting rights A T 4:31 P . M . in a legal office on the sixth floor of Chicago's cavernous Old Post Office Building, clerks began hur riedly passing out copies of a gray covered, 101-page document. Dozens of reporters surged forward to grab copies. Amid the jostling, the commo tion, and glare of floodlights and flash bulbs, U. S. District Court Judge Wal ter J. LaBuy, dressed in black robe and seated serenely at the end of a long table, posed for photographers and movie cameramen. "Would you care to make a statement, Judge?" "My comment," the judge replied emphati cally, "is that there is no comment." In 20 minutes, the hubbub was over. Judge LaBuy posed for one last picture by the light of a corner window and, at the photographer's request, held up high a copy of the document labeled: Civil Action No. 49 C-1071 United States of America
Pfointiff vs. E. I. du Pont de Nemours and Com pany, General Motors Corporation, Christiana Securities Company, and Delaware Realty & Investment Corporation Defendants Thus ended another chapter in one of the most celebrated antitrust cases in U. S. histoiy. In the latest round of a 10-year battle, Du Pont had won. Judge LaBuy ruled that D u Pont does not have to sell or distribute its 63 mil lion shares of General Motors stock, worth $3.5 billion. However, Du Pont is stripped of all voting rights on this stock, which, rep resenting about 23'Y of GM's outstand ing shares, is the largest single block of GM stock. The court also ruled that
DECISION. D u Pont doesn't have to sell or distribute its General Motors stock, but it loses all voting privileges on it, Judge Walter J. LaBuy decides individual public holders of D u Pont stock will receive the GM voting rights on a pro rata basis. This has been the plan favored by D u Pont and General Motors in the latest litigation. The decision ran counter to the wishes of the Government, which has labored for years to sever all connec tions between the two companies. On Friday, Oct. 2, when the court decision was announced, Du Pont stock closed at $255 7 /β· General Motors
closed at $55Vs- By Monday of the following week, the closing figures had risen to $258 ; V 4 for Du Pont and $56 V 2 for GM. • Past 10 Years. The D u PontGeneral Motors case began in June 1949 when the Government charged that D u Pont's ownership of 6 3 million shares of GM stock, acquired in 1917, violated the Sherman and Clayton anti trust acts. The trial began before Judge LaBuy OCT.
12,
1959 C & E N
21
in November 1952 and lasted nearly seven months. In December 1954, he dismissed all charges against the de fendants. H e contended that the Jus tice Department has failed "to prove conspiracy, monopolization, a restrain ing of trade, or any reasonable proba bility of a restraint." The Justice Department appealed, and in June 1957 the Supreme Court reversed the District Court. The Su preme Court ruled, in a four-to-two decision, that D u Ponts ownership of 23','r of GM's outstanding stock vio lated the Clayon antitrust act. The court declared there was a "reasonable probability*' that such ownership gave D u Pont a preferred position as a sup plier of automotive finishes and fabrics to General Motors. Judge LaBuy was ordered to deter mine a method for "equitable relief necessary and appropriate in the pub lic interest." Hearings began early this year and ended in April. The government lawyers had a twopart plan. Du Pont, they said, should sell 20 million shares of its GM stock on the open market over a 10-year pe riod at a rate of 2 million shares a year. And the remaining 43 million shares should be distributed among the D u Pont stockholders outside the D u Pont family. ί Unreasonable Penalty. D u Pont attorneys argued that the government proposal would subject its stockholders to "a harsh, unreasonable, and wholly unnecessary penalty." They claimed that Du Pont's more than 230,000 shareholders would be forced to sell a large part of the GM shares they re ceived to pay the resulting tax levy. The Internal Revenue Service had previously ruled that t h e shares re ceived would be taxed at the current market value as ordinary income rather than as capital gains-in other words, at rates of from 2 0 to 91 r/c, rather than 25 r A or less. T o avoid tax complica tions. Du Pont predicted, many share holders would dump their holdings, thus causing a serious drop in the value of both GM and D u Pont stocks. In the main, Judge LaBuy agreed. H e declared that the government plan would have a "serious impact" on the market value of the stock of both com panies and would result in heavy losses to many people. These people, he said, "cannot conceivably be called guilty persons or even persons aware of any illegality. The court will not assume the responsibility of such risk." The government proposal, said the judge, 22
C&EN
OCT.
12.
1959
Pessimismthen Confidence N.Y. Stock Exchange Prices OuPont Common Stock DECISION MADE
264
~
260
—
t
high/ L 256
—
252
—
248
—
244
—
240
f ιr low
Γ
I
Mon Sept. 28
M
T
W
T
F
is "unnecessarily harsh and punitive." H e therefore ruled that D u Pont may keep its GM stock but is divested of all its voting rights on the stock. He also ruled that Christiana Securities and Delaware Realty & Investment (the two holding companies owned by the Du Pont family) cannot vote any of the GM shares that would otherwise be voted by them as D u Pont stockholders. The voting rights on these nearly 2 0 million shares of GM stock will be "ster ilized/' Also "sterilized" will be the 535,500 shares of GM stock already owned by Christiana. As a further mepsnrp. Jndg** T.f»Buy ruled that neither D u Pont, Christiana, nor Delaware may in the future acquire any additional stock in General Motors. No officer or director of D u Pont, Chris tiana, or Delaware may serve as an officer of GM. The judge also stated that "all preferential trade agreements or understandings between Du Pont and General Motors will be cancelled." • Retains Financial Interest. Judge LaBuy disagreed with the govern ment's contention that D u Pont's con tinued ownership of GM stock and the collection of about $126 million a year in GM dividends would perpetu ate the tie between the two companies. H e argued that "there is nothing in the record which would support, even by inference, the conclusion that Du Pont's
possession of the bare title to General Motors stock—stripped of its right to vote and of its right to representation on the board of General Motors—would create any possibility that the stock would have any influence on the prac tices and policies o f General Motors, or could b e used in any way that would be inconsistent w i t b the mandate of the Supreme Court." Distinctly critical of the govern ment spokesmen, Judge LaBuy called them ''economists without practical ex perience or management responsibility." On the other hand, the company spokes men were "men of w i d e experience and great responsibility for investing funds and marketing securities." Their testi mony, he stated pointedly, "must be given great weight." • Du Pont Reaction. Applauding the decision, Du Pont president Craw ford H. Greenewalt says: "We are grat ified that the court has recognized that a forced distribution of Du Pont's Gen eral Motors stock is not necessary and would result, under the present tax laws, in an unnecessarily harsh and punitive penalty o n hundreds of thou sands of innocent stockholders. "We hope the Department of Justice will recognize that the court could reach no other conclusion, and that the D e partment of Justice, accordingly, will not further prolong this litigation, which has been in the courts for more than 10 years. . . "Although the court's opinion does not require a distribution of the stock, it leaves the door open for any party to the action to ask that a distribution b e ordered if the tax penalties should be removed by legislation in the future. Accordingly, we will continue to urge passage nf remedial legislation w h e n Congress reconvenes next January." Wall Streeters hailed the decision as fair and a victory for Du Pont. Many had feared that, if the court had de cided in favor of the Government, GM stock might have dropped sharply as the market became swamped with GM shares. In Washington, Justice Department officials declined to say immediately whether they would appeal the case t o the Supreme Court. An appeal w o u l d have to be made within 6 0 days after submission of t h e final judgment, due in 15 days. It will give details on how the parties involved intend t o comply with the rul ing.
