CHAPTER 6 MERGERS 842 is the least aggressive of the five in offering discounts on bulk sales of lift tickets or in creating package tours. Before closing the deal, the owners of High Sky made a conscientious effort to find a purchaser completely outside its ski area. It received an offer from Aspen Ski at a price 30 percent below the amount offered by Ski America, but well above scrap value. Because of the special expertise necessary in running a ski operation, other business enterprises shied away from the investment. Would the proposed merger violate the antitrust laws? PROBLEM 6.4 PHILIPS PAPER ACQUIRES SOME PULP SOURCES Five years ago, Philips Paper was the third largest United States manufacturer of paper products including toilet tissue, facial tissue, paper napkins, paper towels, and a full line of other specialty items. Philips sells directly to retail stores, grocery chains and supermarkets, and to wholesalers for distribution to industrial plants, offices, and hotels. Before the mergers here challenged, it accounted for 8 percent of total sales; National was first with 28 percent of sales, Wells second with 11 percent, and six other full-line companies averaged about 5 percent each. The remainder of the market consisted of about 30 small companies, each specializing in some particular paper product. Entry barriers into the business are moderate for full-line companies, involving a minimum investment of about $50 million, but low for specialty outlets. Traditionally all full-line companies owned some timberland and paper pulp mills, but none was fully integrated. On average, these companies including Philips, supplied about 50 percent of thei share of the market was stable, however, and t' needs; the captive vertical mergers in recent years. After several yea been no sizeab decided to make itself independent of pulp su ful study, Philip acquiring three companies, each of which had ext d converters pulp converting facilities. The three togeth ber holdings al percent of all pulp sold materialsER 6 SECTION 5 or by de PROBLEM 6.3 MERGER REMEDIES 841 nd other MERGERS AT CEDAR LAKE also owns s for the Cedar Lake, Colorado is the site of a major winter sports resort, similar ore paper but 100 miles distant from Aspen, Colorado (see Aspen Skiing, p. e rest to " ). Its main attraction is the downhill skiing it offers on the high slopes old paper S Mount Cedar. Five companies run the major ski operations, each offering aving 80 daily and weekly lift tickets. The companies and their ticket revenues for last n smaller reason were as follows: Colorado Ski Resorts, $30 million; Mount Cedar SKI, million; Big Sky, $20 million; High Sky, $8 million; and Ski America, $0 million . market is Cedar Lake is one of three major destination ski resorts in Colorado (a rofitable, destination ski resort is one where most of the patrons come from elsewhere, r smaller in the case of Cedar Lake, 80 percent come from distant locations and 20 past five percent are local residents). Two other ski areas, totaling $4 million in r year in revenues, are located 10 to 15 miles south of the town of Cedar Lake. These are primarily used by local residents, although they could be expanded to e large, offer more destination resort competition with the Cedar Lake group. Expansion could occur within one year and would allow ski slopes in these and over adjacent areas to double the number of skiers they could handle. ase their Constructing a hotel at the base of the slope would increase the potential of ed firms these areas even more, though hotel construction would take at least three years . or other Ski America and High Sky, located adjacent to each other on the rdboard southern slopes of Mount Cedar, have proposed a merger. All three other ently, it Mount Cedar ski operations are on the northern slope. Skiers using the tegrated southern slope find it convenient if they are staying at one of the hotels nearby at the base of the mountain. About 50 percent of skiers on Ski America and High Sky use only the southern slopes, while the rest s in the occasionally migrate to the northern side during an average stay. out half lated to Until three or four years ago, Ski America and High Sky offered a iscounts weekly joint ticket that allowed the skier to use the slopes of either company, but that joint ticket was eliminated following a series of squabbles between the two companies over the proper division of revenues. The companies e able to anticipate a number of benefits from the merger, including new and better popular trails that combine the two facilities and can be developed at a lower cost, a sorship better and more highly utilized ski school, and the ability to offer a joint lars for weekly ticket as well as to offer package tours in conjunction with the hotels mpanies enerally on the southern slope. New ski resorts could be opened in Colorado, Utah, and Wyoming. The e in the slopes and constructing lifts amounts to approximately $4 National cost of laying milion, and the cost of land can range from $5 million to $15 million. Perfect Additional operations could be profitably constructed if new operations could achieve the equivalent of 10 percent of current total Cedar Lake ski ter the revenues. It would take about three years to complete a new operation. would All of the ski operators at Cedar Lake except High Sky have been and we inceptionally profitable . High Sky is saddled with obsolete equipment and has shown small deficits in four of the last five years. As a result, High Sky