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All in the family

by Cecile Kohrs Lindell  |  Published June 19, 2009 at 1:47 PM

Federal agencies are a lot like closely knit families: They rarely admit that there is dirty laundry, much less air it willingly. But a couple of recent spats among the antitrust agencies throw a light on the politics of competition policy and underscore the unpredictability of federal merger reviews and the importance of individual regulators' opinions to the fate of any merger's fate. The problem for the administration is figuring out not only how to make merger investigations more uniform not just within the Federal Trade Commission and the Justice Department's antitrust division, but also to simultaneously make merger investigations and outcomes more uniform at both agencies.

That's not easy. Even though the top antitrust enforcers have pledged to cooperate, the FTC and the DOJ recently battled for 10 days just to decide which agency would analyze EMC Corp.'s cash tender offer for Data Domain Inc.

The fight wasted two-thirds of the 15 days initially allotted for the review. The timing of the interagency fight, known as a clearance battle, is particularly critical to EMC's offer because of the tight deadline to rule on cash tenders. After 15 days, the government must approve the merger or issue a second request for information. Stock offers face a 30-day antitrust review period.

EMC's $30-per-share offer is a hostile bid, launched after Data Domain announced it agreed for NetApp Inc. to buy it. NetApp came back with a bid for $30 in cash and stock, and last week Data Domain rejected EMC's offer and urged shareholders to stick with the NetApp deal.

Antitrust approval without a second request would help EMC sway shareholders to buck Data Domain management, but the time eaten by the clearance fight makes a quick decision unlikely.

Leaders of both agencies have acknowledged that they should avoid these time-consuming fights, but there has been little actual progress.

The Data Domain feud followed an internal disagreement at the FTC over another merger review. The internal strife surfaced after Endocare Inc. announced June 5 that it would abandon its proposed merger with Galil Medical Ltd. The companies make products used to treat renal and prostate cancers. Two business days later, Commissioner Tom Rosch issued a public statement complaining that staff lawyers are not working quickly enough to resolve premerger investigations and cited Endocare's woes as an example.

Rosch argues that the staff's slow pace prompted the deal's abandonment. The agency's apparent lack of regard for merging parties' timetables is "contrary to its statutory obligation and the public interest," he said. "The commission simply must do better."

The Endocare merger was valued below the $65.2 million filing threshold of the Hart-Scott-Rodino Act, which means the companies were under no obligation to obtain federal approval before closing the deal.

Mergers that small typically remain under regulators' radars unless a competitive problem becomes apparent after completion. Antitrust investigations generally occur with those deals only after the merged parties are believed to have engaged in anticompetitive behavior.

Aside from the aberration of a premerger investigation for such a small deal, Rosch said the review lasted too long and uncovered too little information to warrant an agency challenge. Without realizing what they were getting into, the companies agreed not to close the deal while the investigation continued. The review had been going more than six months when the deal was spiked.

But scapegoating staff isn't going to help.

FTC Chairman Jonathan Leibowitz recently named Rich Feinstein to head the Bureau of Competition. It's up to Feinstein to assess the strengths and weaknesses of the management team. With any luck, the same process is under way at the DOJ, where new Assistant Attorney General Christine Varney is revving up the merger team.

But the more important question is not whether each agency acts with speed and consistency, but whether they will work together to make clearance fights less costly to the merging parties.

Cecile Kohrs Lindell covers antitrust for The Deal.

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Tags: Data Domain | Department of Justice | DOJ | EMC | FTC | Justice Department | NASDAQ:DDUP | NASDAQ:NTAP | NetApp | NYSE:EMC
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