RESPONDENT: Interstate Commerce Commission, et al.
LOCATION: United States District Court for the District of Columbia
DOCKET NO.: 28
DECIDED BY: Burger Court (1969-1970)
CITATION: 396 US 491 (1970)
ARGUED: Oct 21, 1969 / Oct 22, 1969
DECIDED: Feb 02, 1970
Fritz R. Kahn - for the appellee Interstate Commerce Commission
Fred H. Tolan - for the appellees Pacific Northwest Shippers in 28
Hugh B. Cox - for the appellees Great Northern Railway Co. et al.
Louis B. Dailey - for the appellants in 38
Richard W. Mclaren - for the United States
Raymond K. Merrill - for the appellee Chicago, Milwaukee, St. Paul & Pacific Railroad Co. in 28
Valentine B. Deale - for the appellant in 44
Facts of the case
The Great Northern Railway Company and the Northern Pacific Railway Company filed applications with the Interstate Commerce Commission (ICC) for a proposed merger of themselves and three subsidiaries. The ICC decided that the merger would result in savings, improved service, and more efficient use of the railroad’s facilities. These benefits were outweighed, however, by the potential loss of jobs and lessening of competition. The ICC later reopened its investigation, focusing on the amount of savings the merger would produce. This time, the ICC approved the merger, concluding that the proposed savings were more important. Several railroads filed a complaint in the U.S. District Court for the District of Columbia, alleging that the ICC failed to give proper weight to the decrease in competition the merger would produce. The district court affirmed the ICC decision. The Supreme Court heard this case on direct appeal.
Was the ICC’s approval of the merger improper?
Media for United States v. Interstate Commerce CommissionAudio Transcription for Oral Argument - October 21, 1969 (Part 1) in United States v. Interstate Commerce Commission
Audio Transcription for Oral Argument - October 22, 1969 (Part 2) in United States v. Interstate Commerce Commission
Hugh B. Cox:
Mr. Chief Justice, may it please the Court.
This morning I shall discuss the exchange ratio.
The negotiations over that ratio extended for more than three-and-a-half years and as it was observed yesterday, each of the two companies here was advised by an independent firm of investment bankers: Northern Pacific by Morgan Stanley and the Great Northern by First Boston.
Now, as Mr. Dailey indicated, one of the perhaps the greatest problem in these negotiations was the natural resource properties in Northern Pacific.
It was agreed by everyone on both sides of the bargaining table that if you looked at merely railroad properties and railroad earnings, the Great Northern was entitled to a very substantial premium in this change ratio.
But the Northern Pacific’s decision was that its natural resource properties entitled it to apparent share-for-share.
The Great Northern took the position that that was not the case.
It said, even with the natural resource earnings based on historical record of earnings, it was entitled to a substantial preference in this exchange ratio and it took different positions about the amount of that preference, but toward the end of the negotiations it said that it thought that giving due allowance to the natural resources, it was entitled to about a 20% premium.
Does the Great Northern own any substantial non-railroad income-producing property or --?
Hugh B. Cox:
No, it is from industrial properties, but I think that you can fairly say as a general matter that its earnings represent earnings from railroad activities.
Suppose it does own a real estate?
Hugh B. Cox:
Yes, it has some industrial real estate and some properties of that kind but nothing like to properties of the Northern Pacific.
I think that has to be said.
This went on until 1960, that kind and I think this is rather significant, the banking advisers of Northern Pacific, Morgan Stanley suggested the compromise was finally adopted which the exchange ratio that the parties agreed to.
Now, that was described yesterday.
I merely would like to say this about the ratio.
The reasoning that underlies it is that it gives the shareholders of Northern Pacific in the long term and equal share in the equity of this new company.
But at the same time it gives an immediate but not a lasting recognition through this preferred stock to the historical fact that the earnings and dividends of the Great Northern had been greater than the exchange ratio was established.
Now this compromise proposed by Morgan Stanley was approved by both investment banking houses by the board of directors of each company and it was twice approved by the stockholders of Northern Pacific.
Once in 1961 and once last year in 1968, and each occasion it was approved by 73% of stockholders, the first time are about 6% of the stockholders who voted against it, the second time about 2% of the stockholders who voted against it.
I think it must be said about the 2% to decline in that vote.
But the Committee conducted a proxy fight and that they did ask that those who favored their point of view not vote as well as vote against.
So that no doubt that the part accounted for they declined in the vote.
But the Committee in the proxy fight presented all the arguments that they have presented here.
Now the Commission and the Trial Examiner both bound that this ratio was just and reasonable.
The Commission found that it fairly represented the contribution that each group or shareholders has made to the new enterprise.
I emphasize that fact because I think the impression might have been left for the Court yesterday that Commission based its approval of the ratio solely on the finding that there was arm’s length bargaining.
Well, it did find that there have been arm’s length bargaining but it also made this finding on the fair contribution to the -- to the new company by each group of shareholders.
The findings that were made by the Commission on fairness to ratio, we submit are supported by substantial evidence.
There was a great deal of evidence to the -- that supported the Commission’s finding that this ratio fairly represented the contribution made by each group of shareholders.