In Obama we antitrust

Responding to a request from the American Antitrust Institute, President-elect Obama made clear his views on merger enforcement earlier this year.

Since the election, commentators have gone to pundit lengths predicting what an Obama administration may bring to the merger-clearance environment.

Rather than speculate, let's look back at what our president-elect said last February. He said then that "the current administration has what may be the weakest record of antitrust enforcement of any administration in the last half century," citing a 53% drop in merger challenges during the Bush era.

Obama singled out certain industries, saying 95% of health insurance markets are highly concentrated and have experienced an 87% increase in rates. And he promised: "I will direct my administration to reinvigorate antitrust enforcement. It will step up review of merger activity and take effective action to stop or restructure those mergers that are likely to harm consumer welfare, while quickly clearing those that do not."

As we look ahead to the next four years, we might as well start by taking the president-elect at his word. Merger enforcement is clearly on his agenda, something he believes has been lacking and that he plans to "step up." In true antitrust spirit, market factors will add context to this stated new direction.

First, current economic conditions may slow the pace of dealflow. But that dealflow may very well have more strategic combinations than in prior years, which would give enforcers under activist leadership at both the Federal Trade Commission and the Department of Justice's antitrust division motive and opportunity to make up the 53% drop-off in merger challenges that Obama cited.

In this regard, an Obama administration is also likely to level any differences in merger enforcement activity between the FTC and the DOJ.

At the same time, the agencies have had mixed results in the federal courts, which not surprisingly take an evidentiary -- not policy -- approach to the law and economics regime inherent in merger challenges. Moreover, several cases in recent years indicate that the courtroom can bring swift resolution absent an injunction pending appeal. Thus merging parties having difficulty passing through a stepped-up agency enforcement environment may be more inclined to take up the transaction in court, pending considerations of timing, risk shifting and likelihood of success.

Finally, merger review standards themselves may change under the new administration. In late November, the American Bar Association's Section of Antitrust Law submitted a 77-page report to Obama's transition chairs urging substantial antitrust reform across an array of areas.

Merger enforcement was hardly left out. The ABA report in particular urges the new Obama administration to examine the merger-review process and substantive standards set forth in the Horizontal Merger Guidelines, which the Section of Antitrust Law contends do not reflect current thinking or application of agency merger challenges based on unilateral effects, potential competition theories or evolving markets.

No one really knows, of course, what the Obama administration will bring to antitrust merger enforcement. But it just may bring a perfect storm: a change from prior years measured in metrics of stepped-up challenges in a time of more strategic combinations under aging merger review guidelines that are put to review and reconsideration.

Michael Cohen is an antitrust partner with Paul, Hastings, Janofsky & Walker LLP, resident in the firm's Washington office. He defended Western Refining Inc.'s acquisition of Giant Industries Inc. through trial and appeal.