A federal judge yesterday temporarily blocked the largest planned cash takeover in American business history, an attempt by the Exxon Corp. to buy Reliance Electric Co. of Cleveland.
Exxon attorneys had argued that any delay in today's scheduled purchase would kill the $1.17 billion deal and cost the nation untold amounts in energy savings. However, they indicated after U.S. District Court Judge Harold L. Greene issued his ruling that the merger might still take place.
"There's nothing unusual about a temporary restraining order," said Exxon attorney Edwin M. Zimmerman. "Clearly this isn't a final decision."
However, lawyers for the Federal Trade Commission were jubilant. "Delighted, absolutely delighted," said Michael A. Schlanger. "We're reasonably confident that the evidence we've developed to date is representative of the body of evidence available...and that we will prevail."
A 10-day temporary restraining order, renewable once at the judge's discretion, was served on Exxon attorney Henry P. Sailer as he sat reading the ruling outside the judge's chambers. If the merger had gone forward today as planned, it would have united the world's largest corporation, Exxon, with the electric motor manufacturer that is number 262 on Fortune magazine's list of the 500 largest firms.
Now, however, the case will be argued again before Judge Greene sometime before Aug. 18. In his ruling, the judge said the FTC had argued strong-united the world's largest oil corporaly enough that the deal would be anti-competitive to justify a full judicial assessment.
The case has attracted wide attention not only for its staggering size, but also for the precedent it may set in intitrust law. At issue, according to the FTC, is the principle of "actual potential competition," the notion that a firm big enough to enter a manufacturing field by itself should do that, and thereby increase competition in that field, rather than buy and thus eliminate a firm already there.
Exxon questions the validity of that doctrine and says what is at stake is the public interest in energy conservation.
Exxon has argued that acquiring Reliance will enable it to perfect and market in a short time an Exxon invention, called an alternating current synthesizer, that makes electric motors much more efficient by changing their voltage and speed as needed.
The oil company insisted it needs Reliance to provide the marketing and production know how for the fastest possible development of the device. It claims the product could save the country 1 million barrels of oil a day, the amount now coming out of Alaska. To start up its own firm would take too long and the public would suffer, Exxon argued.
"The preliminary injunction hearing [before Aug. 18] could well be devoted in substantial part to a determination of where the public interest lies in that regard, which...could and should significantly influence the outcome of that proceeding," Judge Greene wrote.
"The antitrust laws are not, after all, ends in themselves, but only means to the end of serving the public interest," the judge continued.
The FTC had argued that by eliminating a firm that now controls 20 percent of the market for variable-speed motor control devices, Exxon would reduce competition and innovation in the field and thus harm the public interest in energy conservation. "This ruling indicates that Judge Greene recognizes this is appropriately the central focus," FTC attorney Schlanger said.
Others in the FTC and the electric motor industry have speculated that Exxon's interest in this merger may have less to do with its new device than it does with diversification. The mechanism is not unique and is not a breakthrough but an innovative use of solid-state technology.
Reliance, on the other hand, now produces a wide variety of electronic and electrical equipment, with motors accounting for only 10 to 11 percent of$966 million in sales last year.
Exxon offered Reliance stockholders $72 per share of common stock and $201.60 for each preferred stock share, about double the market price. About 95 percent of the common-stock-holders and 72 percent of the others had tendered their shares so far, but the option is only good until Aug. 20, according to Exxon. After that the deal is dead, they maintain, and noted that FTC proceedings have a history of delays.