Newly appointed Federal Trade Commission Chairman Jon Leibowitz says a top item on his agenda is to "revisit the merger guidelines, which are badly in need of reform."
When mergers are few and far between, some might question whether revamping the rules surrounding government's authority to block mergers is a pressing issue. But proponents of reform say now is the perfect moment -- that a period of quiet is the right time to re-evaluate the esoteric theories underpinning antitrust law.
The impetus for change is also coming from the Department of Justice, the other antitrust agency.
Continue reading below
There is a "gap between the guidelines and practice," Carl Shapiro,
the Justice Department's new head of the economics branch of the
antitrust division said at the American Bar Association conference on
antitrust issues last month. "Is that good government?"
The Antitrust Modernization Commission also suggested changes in a
report last year, such as eliminating differences between criteria the
FTC and DOJ must meet to win preliminary injunctions halting mergers
and clarifying which mergers will be assigned to which agency.
The report, however, has largely been ignored.
The rules governing what the government considers when evaluating a
deal may seem arcane to the ordinary person. But the guidelines provide
valuable insight into how the government thinks about issues like
consolidation, and can help companies know whether a deal has a chance
of approval before investing an average of $10 million in uundergoing
the merger approval process.
The basic framework of merger regulation is now sound, Shapiro told
a few hundred antitrust lawyers and economists in Washington. "But that
doesn't mean you can't update them and improve the level of
sophistication."
One area likely to be changed are rules for vertical mergers,
transactions in which manufacturers acquire another link in the supply
chain rather than a direct competitor. Shapiro in a recent paper
suggested that antitrust regulators should focus on the economic
effects of vertical deals rather than trying to figure out if there are
substitutes for the acquired products or services, as now required.
The government created the guidelines in 1968 to explain how merger
investigations are conducted. Major updates in 1982 and 1992 considered
seismic shifts in antitrust economics.
But further developments have yet to be incorporated. For instance,
both the FTC and DOJ have said efficiencies, such as a streamlined
workforce, ability to buy in bulk and the consolidation of
administrative or shipping functions, provide cost benefits that could
justify a merger if they outweigh any consumer harm a deal creates.
The guidelines could also clarify whether merger approvals based on
controversial economic theories -- such as the DOJ's approval for Whirlpool Corp.'s purchase of Maytag Corp. and the merger between the nation's two largest newsprint manufacturers to form AbitibiBowater Inc. -- will be applied to future transactions.
Some new ideas have received a measure of official acknowledgement.
Rather than updating the merger guidelines themselves, the Bush
administration issued "commentaries" that discussed certain decisions
and explained how they were applied to individual cases.
But that exercise may have created more noise, according to Ilene Knable Gotts, an antitrust partner with Wachtell, Lipton, Rosen & Katz in New York.
"We have a Bible, and we have to know how to read the Talmud along with it," she says.
The government approach to antitrust law generally was battered last
year when the DOJ released the first report on combating illegal
anticompetitive behavior by a dominant firm in an industry. A majority
of the FTC rebuffed that monopolization report, which has become a
source of debate among antitrust scholars.
The regulators won't be able to act in a vacuum. Congress will demand its say.
Members of the Senate Judiciary Committee, led by Wisconsin's Herb
Kohl, are old hands at antitrust oversight, but the House of
Representatives is now stepping up its efforts and recently formed an
antitrust subcommittee within the House Judiciary Committee.
Cecile Kohrs Lindell covers antitrust for The Deal.
