United States v. Third National Bank of Nashville

PETITIONER: United States
RESPONDENT: Third National Bank of Nashville
LOCATION: United States District Court of Maryland

DOCKET NO.: 86
DECIDED BY: Warren Court (1967-1969)
LOWER COURT:

CITATION: 390 US 171 (1968)
ARGUED: Dec 11, 1967
DECIDED: Mar 04, 1968

Facts of the case

Question

Media for United States v. Third National Bank of Nashville

Audio Transcription for Oral Argument - December 11, 1967 in United States v. Third National Bank of Nashville

Daniel M. Friedman:

That is the individual employees did not have a vested interest in the plan and apparently this was considered a serious problem to the bank and finally, this bank, unlike the larger banks, did not have any automated equipment or even semi-automated equipment.

It did not have a computer.

Despite these problems, the Weaver and his group decided to go ahead and to buy controlling interest of the bank which they did for a price at about $3,780,000.

They paid $350 a share for this stock and apparently, the price they paid reflected some of the problems of the bank because a financial study that was prepared for the bank at the time of this acquisition, start to pay it for Mr. Hill, indicated that this stock was being purchased at 15 ½ times earnings whereas, stocks of other banks in the South Eastern United States were being sold at 18 ½ times earnings.

And at the trial Weaver explained that the stocks of the banks that were priced at a substantially higher earnings multiple were not comparable and the reason he explained that, it's set forth at the bottom of page 502 of the record was he said, speaking to Mr. Weinbaum, our trial counsel, these banks that are being compared, Mr. Weinbaum, most of them are fully automated.

They have funded pension plans.

They have an adequate branching system.

Their headquarters and their branches are modernized, you simply can't compare on that basis.

Now, Mr. Weaver testified that his group originally bought the stock as an investment and that that no intention of selling the bank or merging it.

But he said that after they had looked into the problems of the bank a little more, they decided they were even worst than they had anticipated.

He said they smoked to a lot of people they knew in the banking field for advice, how to solve the problems of this bank, but they would tell that the problems were very, very difficult and that would be almost impossible they were told to find a replacement for Mr. Hackworth, the president of the bank.

They also said they discovered it would cost more than they had anticipated to fund the pension plan, the locations for branches were very difficult to find and they were very expensive and so the result of these discoveries, they started serious discussion with a Mr. Fleming, the president of Third National Bank who made the purchase.

At the bottom of page 515 of the record, Mr. Weaver explained the role Mr. Fleming played in persuading him to make the sale and this is what he said.

He said Mr. Fleming is a great salesman and he sold beyond the idea and my associates that the problems, the great problems of this bank could best be solved through a merger with the Third National Bank and that the best interest of a stockholders, the employees, the officers, and the national community would be best served through a merger.

And the same thought was repeated page 535 when he was asked, “Would you say that Mr. Fleming more than any other single person illuminated the problems of the trust company for you” and Mr. Weaver replied, “Yes, I would say that he did.

He certainly very forcefully brought to our attention the problems” and then he added of course, you must remember that we have already discovered many of these problems when we started our study in depth.

Two months, after that Mr. Weaver Group purchased the bank for $350 of share, it sold it to the Third National in exchange for stock of the Third National which then had a value of between $405 or to $420 a share or roughly a profit of between $600 and $760,000 on the investment of three and three quarter million dollars.

Now interestingly enough, this was not the first time since he had purchased the stock that Mr. Weaver had discussed the possibility of a merger.

About two weeks after he purchased the stock, he had the discussions with the president of the Commerce Union Bank which was the third largest bank in Nashville that was also interested in buying the stock.

Now Weaver testified that he was at that point not particularly interested in selling because he had purchased the stock for investment that they had discussed the possible exchange of Commerce Union and Nashville Bank stock and the Commerce Union had offered them only 10 shares for one which was worth just about $360 a share and he wasn’t interested.

The president of Commerce Union on the other hand testified that negotiations terminated because they couldn’t' get together on price that they were talking about 10 to one, and Mr. Weaver is talking about 13 to one and roughly $100 more.

After the approval of the merger by the boards of directors of the two banks, it was submitted as the same required under the Bank Merger Act of 1960 to the controller of the currency for his approval, his approval was necessary before a merger could be consummated.

And as the statute required the controller sought of use of the two other banking agencies and of the Department of Justice.

That is the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Company.

All three of these agencies advised the control of that in their view the merger would have significant anticompetitive consequences.

The controller nevertheless approved the merger and the government within a week filed a suit and sought a preliminary injunction to stay the merger, pending the completion of the trial.

After hearing the district court denied the injunction on the 18th of August 1964, the merger took place the same day.

Before the case came to trial, however, the Congress passed the Bank Merger Act of 1966 which in terms applied to this case because it was a case that was pending at that time and under that statute as it permits the control of the currency intervened in the district court in opposition to the government's case and he is appearing before this Court today, supporting the position of the appellee banks.

After a lengthy trial, the district court held for the defendants and dismissed the complaint.

The court ruled that under the 1966 Bank Merger Act, the standards for determining the anticompetitive effect of a merger, are not those that traditionally have been applied in Section 7 of merger cases, but rather that the standards were those that this Court had applied in 1948 in the Columbia Steel decision, a Section 1 case involving a corporate acquisition.