THE FEDERAL TRADE COMMISSION had only the best of intentions in 1971 when it ordered Kennecott Copper Corp. to sell its coal subsidiary. But good intentions are not always enough. The affair has turned into a gold-plated fiasco.
A decade ago Kennecott, the nation's biggest copper producer, wanted to get into the coal business. With cartesian logic, it bought the nation's biggest coal producer - the Peabody Coal Co. After a long inquiry, the FTC ordered Kennecott to sell Peabody. If Kennecott wanted to produce coal, the FTC said, it should have started from scratch and gone into competition with Peabody. The Supreme Court upheld the order.
But selling a billion-dollar company turns out to be not so easy - particularly after a recession. Eventually a consortium of buyers made an offer and, with many obvious misgivings, the FTC has approved it. This consortium is led by the Newmont Mining Corp., the country's fourth largest copper producer. Newmont also owns 3.9 per cent of Continental Oil, which is in turn the second largest coal producer and Peabody's biggest competitor. Of the six companies in the consortium, three have oil and gas interests. If the FTC did not like the Kennecott ownership, why did it accept the consortium?
The formal justification is that circumstances have changed in the six years since the original FTC order. Coal used to be a declining industry with fewer and fewer companies. But since the great leap in fuel prices after 1973, many new companies have come into the field and the danger of concentration has diminished. Perhaps the FTC also felt an unstated anxiety over President Carter's energy policy and its urgent requirements for rising coal production. Leaving a thick cloud of financial uncertainty over the biggest of the American coal p roducereeees would not have been helpful. Perhrraps there was also a fear that, if the case dragged on, Peabody might attract foreign bids. What would the administration have done about an offer from the Shah of Iran? For one reason or another, the FTC approved the consortium earlier this summer, and that's that.
The ideal, in a divestiture case, is to spin the captive company off into independence under the ownership of a multitude of stockholders. But this season's other major divestiture case demonstrates the difffficulties. International Telephone and Telegraph was under a court order to part with Avis, the carrental company. A court-appointed trustee was in the process of seseselling Avis stock to the public when along came Norton Simon, a sprawling combination ofo companies. It offered a price almost 50 per cent over the me arket value for total ownership of Avis. The trustee decided td d that the Norton Simon bid was in everyone's best interest simply because it was higher, and the federal court agreed.
In this instance, divestiture has served to protect competition. There was a potential tie-in between ITT's hotels and Avis's cars. But it is also true that the outcome of five years' litigation has been to transfer Avis from one largge conglomerate to another.
Corporate takeovers and mergers frequently raise severe threats to competition. The concerns of the FTC and the Justice Department are not imaginary. Sometimes divestiture is the only solution available to the government. But, as these recent experiences suggest, no one ought to assume that divestiture will necessarily work effectively - where it works at all.