Wednesday, November 12, 2008

Economic Woes May Force New Administration to Tread Lightly on Merger Enforcement

This posting was written by John W. Arden.

Conventional wisdom—and the President Elect’s own policy statements—indicate that the new Administration will step up antitrust enforcement efforts (“Trade Regulation Talk,” November 6, 2008). However, a new take is that the economic downturn may cause the Administration to allow mergers and acquisitions that have positive economic effects, even if they normally would not pass muster under the federal antitrust laws.

In a November 10 New York Times article (“Why Obama May Assent to Deals”), prominent antitrust lawyer David Boies says that the next two years may see a new wave of mergers and acquisitions because the Obama Administration will be unlikely to kill deals that could save some jobs.

“Preserving jobs and economic stability will be perceived as more important than preserving competition,” Mr. Boies said. The cold, economic reality of the times may take the administration’s focus away from anticompetitive practices, “which is good for the winners (and their deal makers), but maybe not so good for the rest of us,” reporter Andrew Ross Sorkin wrote.

The question now is whether otherwise objectionable deals will be allowed to proceed based on companies’ claims that they are combining out of necessity, according to Sorkin.

An article published November 11 on the Wall Street Journal’s “Deal Journal” blog (‘Don’t Freak Out’ About Mergers Under Obama”) takes a similar angle. Heidi N. Moore writes that earlier fears that an Obama Administration might “holdup big combinations over antitrust concerns” might be unfounded.

In an interview, James “Hart” Holden, an antitrust partner with law firm Paul Hastings Janofsky & Walker, says that talk about how antitrust enforcement will be ramped up in the merger and acquisitions area is overblown.

“It’s overblown because if you drill down a little, there are two agencies that do merger reviews: the FTC and the DOJ,” said Holden, a former FTC enforcer. “When it comes to the FTC, they’re much less susceptible to political changes than the DOJ is. The FTC have five commissioners, and no more than three can be of the party in power. They are designed to be more immune to this sort of thing than the DOJ. And many areas where Obama wants to ramp up antitrust enforcement are in the FTC’s purview: energy, health care and so on. The FTC right now are fairly aggressive antitrust enforcers already.”

“The DOJ does not have the authority to block mergers,” he continued. “They have the authority to investigate mergers and file a lawsuit, but they do not get to decide; that power is with the federal courts. At the end of the day, nobody knows why the DOJ may or may not block a merger. And if someone tells you they do know, they’re crazy. The DOJ may have thought that the merger was problematic, but maybe they didn’t have the evidence to prove it in court.”

Nevertheless, Holden is not expecting the government to give out any easy passes. “Expect things to get harder on the margins,” he advised. “But don’t freak out about any sea changes at the DOJ or FTC. Change in the Obama administration won’t have a huge impact on deal flow. Most deals have minor or no antitrust concerns.”

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