This is a story about government regulation, a story in which everyone is a loser.

At first glance it appears to be a simple story, the kind of horror tale frequently told and retold by industry during its assault on the evils of overregulation.

But it is not that simple.

This story began on March 4, 1977, when the Federal Paper Board Co. reached agreement to sell its Federal Glass Co. division in Columbus, Ohio, to the Lancaster Colony Corp. for $45 million.

Because the sale involved the merger of two separate firms, each with about a 10 percent share of the machine-made, soda-line glassware industry, the Federal Trade Commission issued a complaint three months later challenging the transaction as anticompetitive.

A month after that, a federal judge enjoined the acquisition, pending completion of the FTC investigation.

Federal then decided that it would not well the plant, but would instead pour in some money and improve the operation, which the FTC said had been profitable until 1977. The company signed a consent order stating that the chance of reopening talks with Lancaster was slight.

But in the spring of 1978, the presidents of Lancaster and Federal met with FTC Bureau of Competition director Alfred Dougherty to discuss the sale once again, because Federal apparently was not making it on its own. Industry sources say the company has never recovered from the oil boycott, when its largest customers-oil companies buying glasses for gas-station giveaways-all stopped buying. Giveaways were no longer needed.

At that point, the FTC decided to check out claims by Federal President John R. Kennedy that the Glass Division might have to be closed if the Lancaster deal did not go through, putting 1,500 people out of work.

The FTC staff decided the company was viable and pointed to Federal's 1977 annual report, which predicted a profitable year for the glass company in 1978.

Kennedy further said the glass company had a liquidation value of $31 million, and would not be sold for less.

Then, in June 1978, the FTC's Dougherty wrote Kennedy and informed him the FTC felt Federal Glass was not a failing company. He suggested that Federal hire an outside investment broker to take 120 days to find an alternate purchaser for a deal that did not have antitrust implications.

Federal Paper held a press conference that day to deny rumors that the company would be closing its plant. Later, the company retained the investment banking firm of First Boston to locate a purchaser, but said it would wait only about seven weeks before giving up, and selling to Lancaster anyway.

At this point, there is disagreement over what happened. The FTC claims Federal did virtually nothing to find a buyer, at least partially because Federal Glass was worth more to Lancaster than to any noncompetitor, and Federal wanted the higher price.

Federal Glass officials say they did try-desperately-to find a buyer, but that no one was interested, at any price.

Three weeks after the FTC told Federal to find another buyer, Lancaster said it was withdrawing its offer, but would not say flatly that it would not, at some later time, purchase all or some of Federal's assets. "We have been down the road with the FTC," one Lancaster official said. "We just didn't want the grief."

After the seven weeks, Federal said there was a chance that an employe group at the plant would purchase the operation, which would settle the entire situation. But by that time-the end of December-the FTC staff was getting concerned about continuing press reports that Federal was planning to shut the operation.

Then, under pressure from an FTC administrative law judge, on Jan. 26, 1979, Federal-for the first time in print-alleged that it was a failing company, and thus exempt from antitrust laws preventing its sale to Lancaster.

Three days later, the employe deal fell through.

One day after that, on Jan. 31, 1979, Kennedy announced that his plant would be shut down immediately, and all 1,500 workers dismissed. There had been no advance warning to the FTC or even the employes of the company.

After the closing two other unsuccessful sale attempts were made involving outside companies. Kennedy then announced he would shortly liquidate the plant's assets. Suddenly, Lancaster was back in the picture with a Feb. 7 announcement that it would still be an interested buyer. And there were ugly rumors that pressure had been put on the other two bidders to back off: pressure from Columbus interests who wanted the sale to go to Lancaster.

Despite its belief that Federal was a profitable venture that should not be sold to a competitor, the FTC withdrew its objection to the sale of Federal to Lancaster paving the way for the reopening of the plant.

But the situation had changed, and now Lancaster would have to negotiate with the plant unions over new contracts. Last year Lancaster said that it would abide by existing contracts-had it purchased an operating plant.

On Monday, Lancaster Colony Corp. officially notified the Federal Paper Board that it could not reach agreement with the union, and the deal was over.

On Tuesday, Federal's Kennedy said he would begin selling the assets of his plant "later this week."

"The deal is off," Kennedy said in an interview, "and it's a crying shame." He blames the FTC, which he calls "a national disgrace."

For their part, the FTC blames Kennedy. "We know what he was doing," one FTC source said. "He wanted the best price he could get, and that would only come from a competitor. It has become clear to us that the new weapon against any FTC regulation is the threat to close down. In this case, it just backfired."