interest in U. S. Lines in late 1967, and, in January 1969, U. S. Lines became a wholly owned subsidiary of Kidde. It has no other investment or ownership in the transportation industry. Initially Kidde believed U. S. Lines would be a profitable investment generating sufficient funds to service its own debts, however, it learned in short order that the implementation of a full containership service would require that carrier to incur large unanticipated debts. It asserts it has lost $40 million as a result of its involvement in U. S. Lines as that carrier has failed to generate the necessary profits and cash flow anticipated. Part of its financial difficulties it attributes to a need for additional capital coinciding with a general economic slow down, a restrictive capital market, and an escalating cost of borrowing.

In August 1969, U. S. Lines began negotiations with Sea-Land and Reynolds concerning a time charter of its containerships, which charter it believed would provide a source of income adequate to support U. S. Lines expansion into other shipbuilding programs. While these arrangements were being considered the operating results of U. S. Lines and the liquidity crisis became more critical. These were aggravated by previous operating loss, delays experienced in obtaining delivery of containerships, the general economic recession, and the intensity of competition, particularly in the U.S.-North Atlantic-European trade, and various major strikes. The accumulation of these factors resulted in U. S. Lines needing a substantial grant of working capital which Kidde was unable to provide due to limitations inherent in its own financial structure and the limitations included in its bank and insurance loan agreements. Ownership of U. S. Lines caused an additional $125 million long-term debt on Kidde's balance sheet which limited its ability to engage in other long-term financing. In order to satisfy lenders to whom it was indebted Kidde agreed not to make any substantial advances or guarantees of funds to U. S. Lines. Accordingly it initiated efforts to dispose of that carrier to no avail.

During the fall of 1970, U. S. Lines lost approximately $5 million and its cash situation deteriorated to the point that its cash shortage amounted to $12.2 million on September 30, 1970, with a number of accounts past due and the carrier unable to make a $2 million repayment on its bank loan that fell due on October 31, 1970. In October 1970, contact was made with Reynolds Tobacco and McLean Industries looking to possible disposition of U. S. Lines. After some negotiation acquiesence in such a disposition was given by Reynolds Tobacco with Kidde to receive $65 million for U. S. Lines. It asserts this is the best price that could be obtained in the light of that carrier's poor operating results, its financial condition and the depressed economic situation, which it asserts is corroborated by its unsuccessful attempts to locate other purchasers. The book value of U. S. Lines in 1970 was $72 million and during the 9 years prior to Kidde's acquisition that that carrier was a publicly held corporation, it has never been valued in the open market in excess of 55 percent of book value.

EVIDENCE IN OPPOSITION

American Export Isbrandtsen Lines, Inc. (AEIL), is a water carrier subsidiary of American Export Industries, Inc. AEIL operates weekly service in the North Atlantic traffic with three containerships, each of a capacity of 928 20-foot containers. This carrier calls at New York, Norfolk, Felixstow, LeHavre, and Bremerhaven. It provides weekly service to the Mediterranean area with three vessels each with a capacity of 324 20-foot containers; and 12-day service on the Atlantic coast to the Far East utilizing seven partial containerships. This protestant also provides break-bulk service

over two of its foreign routes. AEIL is building three additional containerships with delivery expected in 1972-1973, for use in the North Atlantic and Mediterranean service. In addition, it has recently purchased four containerships whose capacities are capable of being doubled by modification, and its six break-bulk vessels likewise can be so modified. It opposes this application principally for the effect a grant thereof would have on the North Atlantic trade. This protestant is a party to discussions among a number of lines operating in the North Atlantic, including both vendor and vendee, which it hopes will result in improving the competitive picture. It asserts approval of this application would undermine such efforts and it is concerned about the manner of deployment by Sea-Land of the combined Sea-Land-U. S. fleet in the event approval is granted. Protestant has limitations on its flexibility as it is a recipient of an operating differential subsidy while Sea-Land receives no such aid. American Mail Line (AML), is an American flag carrier almost entirely owned by American President Lines. This carrier operates two services from the Pacific Northwest, one to India and the other to Japan and neighboring countries. These are subsidized by the Government, and it competes with Sea-Land on west coast Far East traffic. This protestant has an application pending for 55 additional sailings on this route and operates 10 break-bulk vessels and 5 partial containerships, the latter having a total container capacity of 3,383 20-foot equivalents. Two of the break-bulk vessels are to be converted to containerships over 1,178 20-foot capacity by the end of 1971 for use in the above-mentioned trade. This carrier transported a substantial amount of military cargo varying from 71 to 98 percent of its commercial carryings outbound in the years 1967 through the first 6 months of 1969.

American President Lines (APL) is a wholly owned subsidiary of Natomas Company and Signal Oil Company, and is an American flag carrier operating entirely from the west coast. This protestant provides four services, one a combination passenger-cargo vessel and three cargo vessels. It also operates 25 partially containerized vessels with a total container capacity of 5,973 20-foot equivalents. Service is rendered between California, Mexico, Hawaii, Japan, Viet Nam, Cambodia, and other foreign countries utilizing eight containerships; between the United States east coast, west coast, Japan, Hong Kong, Philippines, Malaya-Indonesia, Singapore, Ceylon, India, Pakistan, Egypt, Italy, and France it uses break-bulk vessels; and between the Atlantic coast, Canada, California, Philippines, Indonesia-Malaya, Viet Nam, and Far East port it uses war built vessels. Protestant has under construction four containerships scheduled for delivery in 1972 with a total capacity of 4,836 20foot containers. This carrier likewise transports a substantial amount of military cargo and competes with Sea-Land in the transpacific and intercoastal service via service between points on the east coast and California.

While no labor union organizations appeared in this proceeding as they did before the Federal Maritime Commission, applicant asserts, and no challenge is offered thereto, that labor would benefit from approval of the application as filed. Vendee asserts U. S. Lines would enjoy financial security that is presently lacking and that its operations would insure a continuing need for existing personnel. If business increases as a result of better utilization of the facilities of both vendor and vendee it envisioned the possibility of increased hiring. Finally, U. S. Lines labor force is protected by collective bargaining agreements between the various unions and that carrier, and Sea-Land assures any person displaced in U. S. Lines organization preferential treatment as to employment opportunities.

MODIFICATION OF THE APPLICATION AS FILED RESULTING FROM THE
DECISION OF THE FEDERAL MARITIME COMMISSION

The full Maritime Commission by its opinion served February 12, 1973, accepted jurisdiction over the proposed merger, supplemental agreement and promissory note, and the charter agreement. Action by that agency is deemed most pertinent to an appropriate disposition of the application pending before the Interstate Commerce Commission by virtue of the fact that some 95 percent of the gross revenues realized by vendor as well as vendee are derived from foreign commerce within the jurisdiction of the Federal Maritime Commission, and that only 5 percent results from coastwise or intercoastal traffic within the purview of this Commission.

FMC modified the proposed agreement, approving the acquisition of U. S. Lines by Reynolds Industries upon certain conditions, that will be more specifically set forth hereafter in order to permit continued Federal Maritime Commission surveillance of the acquisition, reserving authority to that Commission to oversee such agreement pursuant to section 15 of the Shipping Act, 1916. FMC disapproved the supplemental agreement but did approve the promissory note. The majority of that Commission felt this action to be correct in the light of the overall domestic and international merchant marine situation. FMC determined approval thereof is required so as to enable the American merchant marine to compete with merchant fleets of other countries who utilize consortia, mergers, and other cartel-type activities, that its decision is required by its overriding duty to protect the foreign waterborne commerce of the United States, and that a very important tool in the implementation of that responsibility is an American merchant marine that is permitted to have active companies as strong financially as the commercially or governmentally mandated conglomerates of foreign merchant marines.

FMC is concerned that foreign participants in our ocean commerce are not restricted by our antitrust policies and laws, whereas, our own corporations are limited by the considerations of the Federal antitrust statutes. This, it maintains, unduly restrains American firms in its competition for ocean traffic and is not in the best interest of the United States as it limits the competitive efforts of the American merchant marine and the mandate of our shipping laws for equal treatment of all flag carriers.

Thereafter, FMC approved the acquisition by RJI as a presently wholly owned subsidiary of R. J. Reynolds Industries, of all the oustanding common stock of U. S. Lines, subject to the following conditions:

I. The stock of U. S. Lines transferred to RJI is to be held by RJI to insure the independence of U. S. Lines.

a. There shall be no substitution for RJI as the owner of U. S. Lines' stock without FMC approval. Reynolds/RJI shall not sell, pledge, or in any encumber the U. S. Lines' stock.

b. The corporate ownership of Reynolds, RJI, and U. S. Lines shall be irrevocable except as may be ordered by the FMC.

c. This approval shall be subject to constant surveillance and to review by the Commission at least every 5 years with records and reports remaining confidential. d. Reynolds/RJI acknowledge that the FMC can and may require them to divest themselves of U. S. Lines' stock upon order of the FMC for breach of any condition herein and agree to comply with any such order of divestiture.

e. Reynolds/RJI shall not sell or otherwise dispose of, or encumber by lien, mortgage, or otherwise, the assets of U. S. Lines except upon approval of the FMC. f. No scheme or device may be adopted by U. S. Lines, RJI, or Reynolds which would result in the distribution or dissipation of the assets or revenues of U. S. Lines, except that reasonable cash dividends with U. S. Lines' stock may be paid out but in no event to exceed net operating profits of U. S. Lines for the prior corporate fiscal year, based upon sound accounting principals and after adequate provision for debt servicing.

II All expenses, debts, and financing of U. S. Lines' operations existing at the time of the consummation of this transaction shall be assumed by Reynolds; and Reynolds in the spirit of presentation made in this proceeding will assist U. S. Lines in future financing.

a. No loans or advances of funds by Reynolds to U. S. Lines or RJI for the benefit of U. S. Lines may be secured by the existing assets or future revenues of U. S. Lines, or by U. S. Lines' voting stock or evidence of voting interest in U. S. Lines, and U. S. Lines shall notify the FMC of any intercompany loans and the terms thereof.

III U. S. Lines is to be operated as an independent carrier in all respects in competition with Sea-Land. Upon the adoption of U. S. Lines and/or Sea-Land of any alteration in their competitive relationship, the FMC, on its own motion, or on petition of a party or person having an interest, may institute a proceeding to determine whether such alteration is consistent with the terms and conditions herein.

a. McLean Industries and Sea-Land shall not have any employees, officers, or directors in common with RJI and/or U. S. Lines, except with respect "public members" of the board of directors.

1. One director of U. S. Lines and one director of Sea-Land shall be a “public member": persons experienced in maritime transportation and corporate finance shall be appointed by the Chief Judge of the U. S. Court of Appeals for the District of Columbia or another independent source to be selected by the FMC. These directors shall also be members of the executive committees of the board of directors, and shall report to the FMC as to any and all competitive service decisions and as otherwise may be required by the FMC.

b. U. S. Lines and Sea-Land shall establish and maintain separate bids and tariffs for the carriage of military or other United States Government-controlled or generated cargo.

c. U. S. Lines shall be a member in its own name in conferences, pools, and other agreements approved by the FMC or hereafter filed for approval except as otherwise authorized by the FMC.

d. U. S. Lines and Sea-Land may not have common soliciting or general agents, or attorneys or accountants, except to the extent authorized by the FMC.

e. U. S. Lines and Sea-Land shall not share in any pool percentages except as authorized by the FMC.

f. U. S. Lines and Sea-Land shall not enter into any ship sale, ship charter, space charter, equipment interchange, transshipment, or any similar type of arrangement, or any type of service rationalization arrangement with each other without FMC approval.

IV U. S. Lines, Reynolds, Sea-Land, and McLean Industries shall submit to the FMC, in form as prescribed by the FMC, semiannual reports verified by the president and the treasurer or secretary of such corporations with respect to the adherence to all the conditions contained herein.

a. The FMC shall have access at all times to all records of U. S. Lines, RJI, Reynolds, Sea-Land, and McLean Industries with respect to the maintenance of these conditions, particularly, but not limited to condition III b.

V Any party or person having an interest in the subject matter may at any time petition the FMC for modification of any of these conditions, and jurisdiction shall be retained by the FMC to amend, modify, or cancel these conditions in part or in whole, pursuant to such petition or on the Commission's own motion after notice and hearing when required.

VI As used in these conditions, “Reynolds” unless otherwise identified, means R. J. Reynolds Industries, Inc. Sea-Land, Reynolds Tobacco, Reynolds Industries, McLean Industries, RJI and U. S. Lines means those companies so identified; provided, that common employees among these companies shall not be prevented except as provided in condition III a. No subsidiary, parent, successor, or other. organizations or corporations similarly or otherwise affiliated with Sea-Land, Reynolds Tobacco, Reynolds Industries, McLean Industries, RJI, and U. S. Lines shall be used or shall take any action to obstruct, prevent, or otherwise impair the requirements of these conditions.

VII Reynolds undertakes to place all eight SL 7's under United States documentation as rapidly as the vessels are delivered. With exception of the eight SL 7's, and with the exception of other vessels now owned by Reynolds or Sea-Land already built or converted outside the United States and now documented under the laws of the United States, United States Lines and Sea-Land shall operate only vessels built and/or converted in the United States, documented under the laws of the United States, and manned by american crews, provided that existing operations of foreign-flag vessels may be continued but not beyond a period of 2 years from date. Further provided, subject to Federal Maritime Commission approval, SeaLand and United States Lines shall not be precluded from using foreign-flag vessels for feedership or like operations under circumstances where, because of the economics of the situation or the laws of other countries, the use of such foreign-flag vessels is required.

FMC went on to describe that by full competition it means to have U. S. Lines compete in every way with Sea-Land, that is it would not be required or prohibited from instituting a new service just because Sea-Land was already in that particular service. This does not envision wasteful duplication merely to maintain competition but is consistent with revenue pooling agreements and conferences. It recognized that a business judgment would be required if a service is available which neither carrier then served but that one carrier can serve. In those instances it recognizes a business judgment would require that support be given to only one of the two carriers. Finally, it determined it would permit this acquisition but only under the aforementioned restrictive conditions. Finally, FMC rejected the supplemental agreement proposed for the disposition of U. S. Lines should FMC and this Commission disapprove the initial proposed merger.