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The fate of Chicago Bridge & Iron Co.’s acquisition of a Pitt-Des Moines Inc. subsidiary now rests with a federal judge. Lawyers for the Federal Trade Commission and the companies presented closing arguments Thursday, the final day of a two-month trial over charges that the merger was illegal. Administrative Law Judge D. Michael Chappell is expected to rule in March. The case has drawn interest in the antitrust bar because the FTC has not broken up a completed merger for decades. Victory in this case would strengthen the agency’s hand in its investigation of other consummated transactions. Chicago Bridge agreed in September 2000 to buy PDM’s engineered construction division for $93 million. The company made its Hart-Scott-Rodino Act notification Sept. 12 of that year, and the statutory waiting period expired Oct. 12 without the FTC issuing a “second request” for information on the deal. Yet before the companies could close the transaction, the FTC asked them to delay the merger to give the agency time to investigate further. After waiting three months, the companies asserted their legal right to consummate the deal, which they did Feb. 7, 2001. The price was renegotiated to $80 million to reflect a decline in the value of PDM’s assets. The FTC filed an administrative complaint in October 2001, eight months after the deal closed. It alleged the merger would harm competition for liquid natural gas tanks, peak shaving plants for liquid natural gas, storage tanks for liquid oxygen and nitrogen, storage tanks for liquid petroleum and thermal vacuum chambers used to test satellites. Arguments on Thursday offered each side three hours to make a final pitch to the judge. FTC senior litigation counsel J. Robert Robertson attacked Chicago Bridge’s contention that the merger was legal because PDM planned to liquidate the division if the deal fell apart. Robertson argued that Chicago Bridge, in invoking the so-called failing firm defense, was improperly applying the rationale for the deal to a company that was exiting the market. The failing firm defense — which says that an otherwise anticompetitive merger is legal if the target is going out of business — only works if there are no other buyers. Robertson said other firms could have bid on the division or PDM could have sold off the unit’s assets. “The plant would not have become a shoe factory,” he said. “It was still going to make tanks.” Robertson also challenged Chicago Bridge’s assertion that the deal was permissible under antitrust law because the gains from a new competitor entering the market outweighed potential harms from the merger. Such “new-entry” analysis is invalid because it requires a new competitor to join the market within two years of the merger, he said. “We are almost there,” Robertson said. “It has been about two years. We don’t see it on the horizon.” Capping off his argument, Robertson cited numerous witness statements, Securities and Exchange Commission filings and other documents in which Chicago Bridge and PDM identified each other as major competitors that affect pricing. “Before the acquisition [Chicago Bridge was] not getting very high margins,” he said. “Why? Because of PDM.” Chicago Bridge’s counsel, Duane Kelley and Jeffrey Leon of Chicago law firm Winston & Strawn, charged that the FTC failed to meet its initial burden of showing the merger was anti-competitive. Kelley argued that the FTC unfairly inflated the deal’s Herfindahl-Hirschman Index of market concentration score by looking at all tank construction since 1990. There is no evidence to support using 1990 as opposed to any other year, he said, noting that using 1996 as the starting date eliminates all of the market share concerns. “The government has not proven its prima-facie case,” Kelley said. Kelley also went through the five markets in question, citing testimony and documents explaining why the merger did not harm competition. He noted that seven companies now compete in the liquid natural gas tank market and that customers believe the market is very competitive. Leon criticized the government’s evidence, arguing that much of what the FTC presented was before the giant European and Asian tank construction companies entered the market. He also accused the agency of “arrogance” for asserting that it knows better than Chicago Bridge’s customers about whether the PDM deal hurt competition. “It is paternalistic,” Leon said. “Customers are in a position to know whether they will get screwed or not.” Briefs are due in February. Either side may appeal the judge’s decision to the five FTC commissioners, which would sit as an appellate court. If Chicago Bridge loses, it likely would have to divest the PDM business. Copyright �2003 TDD, LLC. All rights reserved.

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