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On-Again, Off-Again Merger Up In The Air

April 1, 1988

ROCHESTER, N.Y. (AP) _ The merger between the photofinishing operations of Eastman Kodak Co. and Fuqua Industries Inc. has had a rocky trip through the court system and the journey is not over yet.

U.S. Supreme Court Justice Byron White on Thursday set aside a lower court’s decision to allow the merger to go through.

It was unclear what effect this temporary ruling would have, since the merger was completed before White’s ruling.

Fuqua President Lawrence Klamon said he didn’t think it would change anything and Kodak asked White to reconsider.

″This has no practical effect on the merger,″ Klamon said from Fuqua’s headquarters in Atlanta. ″It’s a done deal. This is a moot point.″

The legal wrestling over the merger comes as a result of a lawsuit filed by a small wholesale photofinishing competitor, Phototron Corp. of San Bernardino, Calif., which claims the merger violates antitrust laws.

In court documents, Phototron claims that together Kodak and Fuqua’s subsidiary, Colorcraft Corp., would control between 65 percent to 88 percent of the wholesale photofinishing market.

″This merger would require us to get into a closet with a gorilla,″ said Joseph Alioto, the San Francisco attorney who is representing Phototron.

The company’s lawsuit was filed in Fort Worth, Texas, and a judge there on Feb. 22 blocked the merger until he could hear the case and issue a ruling.

Kodak and Fuqua, however, appealed that decision to the U.S. Court of Appeals in New Orleans, where a three-judge panel on Monday reversed that decision.

Those judges said Phototron had no right to stop the merger and gave Kodak and Fuqua permission to merge.

The two companies immediately combined operations the next day, forming a new company called Qualex Inc., which has 94 processing labs around the country and is based in Durham, N.C., which had been the home of Colorcraft.

Wholesale photofinishers primarily process film and print photographs for supermarkets, discount store chains and drug stores.

White’s decision to set aside the Court of Appeals ruling until Tuesday when additional arguments on the case can be heard further muddles the situtation.

Alioto said the ruling means the merger will have to be dismantled.

″They acted too fast and now they have to face the consequences,″ he said. ″Whatever was done has to be undone.″

But Klamon, who is an attorney, said White’s decision will have no practical effect on the merger. He explained it using an analogy of a car approaching a stop light.

He said the federal judge in Fort Worth turned the light red as the Kodak- Colorcraft merger approached. The Court of Appeals turned the light green and the merger went on its way, Klamon said.

Now, Phototron has convinced the Supreme Court to turn the light red again, but it no longer matters because the merger has already passed through the intersection.

Klamon said he expects the high court to dismiss White’s order on Tuesday once it finds out that the merger has already proceeded.

Kodak spokesman Paul Allen said the company’s attorneys are still reviewing the decision.

Regardless of the outcome of the Supreme Court fight, Phototron’s original lawsuit against Kodak will continue in U.S. District Court in Fort Worth and a decision there could still force the merger to unravel, Alioto said.

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