The Justice Department's Antitrust Division, which has gone to court in Dayton, Ohio, to block Occidental Petroleum Corp's acquisition of Mead Corp., yesterday introduced a new objection to the takeover bid. Justice raised the so-called "deep pocket," or entrenchment issue, by arguing that Mead could become dominant in a sector of the paper industry where it currently is one of the leaders if it gets access to the cash flow that Oxy promises to bring to the merger.
Four producers, including Mead, account for about 58 percent of the coated free sheet paper market, Justice said. The most effective way to expand production capacity, Justice said, is to build modera "greenfield plants" with access to power, timber, and water resources, among other things.
These greenfield plants can cost as much as $500 million, Justice said.
Justice argued yesterday that the cash flow produced by an Oxy-Mead combination would allow construction of greenfield plants, leading the new company to become dominant in the coated free paper market.
When Justice first sued on Oct. 11 to block Oxy-s takeover of Mead, it argued that the combined companies would monopolize the markets in sodium chlorate, carbonless paper and a form of bituminous coal.
On Monday, Oxy offered to sell off certain of the production facilities that caused the challenge by Justice.
Mead is waging a costly legal and public relations fight against the Oxy tender offer.
On Friday, the Ohio Division of Securities ruled that Oxy must make additional disclosures about its foreign and domestic business operations.
As a result of the objections raised by the Ohio authorities and by Mead, the Securities and Exchange Commission has begun reviewing some of Oxy's financial disclosures.
Meanwhile, Oxy recently reported a 50 percent decline in earnings for the third quarter.
The Company blamed the slide on a sidiary. It also said it set up an $11 million reserve to settle class action suits growing out of a 1971 SEC suit against the company and its chairman, Dr. Armand Hammer.
Third quarter net income was $19.3 million against $39.2 million a year ago. Sales were $1.72 billion compared with $1.5 billion in 1977.
For the nine months, Oxy reported a net loss of $16.6 million on sales of $4.57 billion, compared with a profit of $92.5 million on $4.5 billion in sales a year earlier. The poor showing for three quarters was blamed on Oxy's $122 million write-off of an oil refining facility in Europe.