CHALLENGES OF THE CURRENT MERGER WAVE
LAWRENCE R. FULLERTON
ANTITRUST 1996 CONFERENCE
Delivered: September 29, 1995
It is a pleasure to be here today. Breakfast is little early in the day for most people for a discussion about merger policy and antitrust, so I appreciate your efforts to be here. I will try to keep this as painless as possible by talking for just a few minutes about the extent and nature of the current merger wave, and the challenges it presents for those of us involved in the merger review program at the Antitrust Division.
We are indeed in the midst of a significant merger wave -- both in aggregate terms and within the particular industries in which the Division often has merger review responsibilities:
There are similar stories in the media, health care, and other industries. Following the recent proposed sale of Magnavox Electronic Systems, many analysts are predicting increased acquisition activity in the defense electronics industry, as well.
The reasons for this increased merger activity are numerous:
These factors suggest that most mergers are designed to capture efficiencies, which can be expected to lower costs, lower prices and improve products for consumers. Such mergers are good, and ought to be allowed to proceed. Other mergers may raise antitrust concerns, of course, warranting examination by the Division and the FTC.
With all of this activity, we may see even more mergers shortly in the telecommunications industry, as a result of enactment of the telecommunications legislation now pending in Congress. The House bill, in particular, would encourage merger activity by lifting current FCC limits on the number of TV and radio stations a single owner may hold, both locally and on a nationwide basis; and abolish various media cross-ownership rules, such as the rules prohibiting a single entity from owning both a TV and a radio station in a given local market, both a TV station and a newspaper, or both a TV station and a cable system. The bill would also relax restrictions on Bell Operating Company entry into long distance and manufacturing, which may of course lead to their entry via acquisitions. The President has threatened to veto this bill, citing some of these provisions among others.
As you would expect, this increase in merger activity has translated into increased work at the Division:
We are proud of the results we have achieved in fiscal year 1995. Our approach is a surgical one designed to focus only on the anticompetitive aspects of troublesome transactions. We filed formal challenges to a total of nine mergers in court in fiscal year 1995. We won one at trial, a case involving the combination of the only two local daily newspapers in the Fayetteville, Arkansas metropolitan area.(1) One transaction was withdrawn by the parties after the filing of the complaint; six others were settled with consent orders that blocked only the anticompetitive aspects of the transaction, permitting the rest of the transaction to go forward. One case is still in litigation -- that is our challenge to Engelhard Corporation's acquisition of the attapulgite clay mining and processing assets of Floridin Corporation.(2) Seven additional transactions were restructured as a result of the Division's investigation, but before the filing of a formal complaint.
It's not just that the numbers and the average size of mergers are up. The mergers we are seeing today are of a fundamentally different nature, as compared with past merger waves. Mergers today tend to be strategic mergers that involve horizontal competitors, or firms with a direct vertical relationship that are designed to better position companies to compete in their markets -- rather than a conglomerate merger or one driven by merely financial considerations. While these types of strategic mergers have the potential in many cases to improve efficiency and lower costs and prices, they are also more likely to present antitrust issues.
Increasingly, our mergers involve international players, and dynamic industries that are advancing technologically. An example is Sprint Corporation's new relationship with France Telecom and Deutche Telecom, which we challenged and settled with a consent decree designed to guarantee continued access of U.S. long distance carriers to the French and German telecommunications markets.
This trend is matched by a growing sophistication in merger analysis. For all of these reasons, mergers are more difficult and resource-intensive to analyze. We must spend more time and resources than we did before in clearing transactions that we decide not to challenge, as well as more time in analyzing and preparing to challenge the ones that we do decide are anticompetitive.
The increasing complexity of merger analysis has imposed costs on the parties, as well. The standard second request issued by the Division and the FTC does call for a fair amount of information, although we and the FTC took steps last March to harmonize our second request and reduce burdens.
In general, the Department has attempted to reduce the burdens on private parties -- as well as to conserve our own resources -- to the extent possible consistent with our merger enforcement mission. We have sought to increase the involvement of the Division's Front Office in merger reviews, with a goal of making early decisions on policy issues. We have emphasized the importance of early closing of investigations that we think are unlikely to reduce competition. We have attempted to prioritize and focus investigations. All of these efforts have reduced the burden of merger enforcement.
The Department has also engaged in a program of increased training to improve staff proficiency, to ensure uniformity of standards across different staffs and sections, and to maintain the high degree of professionalism prevalent at the Department.
Finally, the Department has increased cooperation with State authorities. This increased cooperation has reduced government and private burdens, brought greater uniformity to antitrust enforcement, and provided one-stop antitrust shopping for the business community in some cases.
While the Department has accomplished much, there is still more that can be done. We are working closely with bar associations and business groups, the National Association of Attorneys General, and our Congressional oversight committees to improve our merger program. With this help, we are optimistic for the year ahead.
1. Community Publishers, Inc. v. Donrey Corp., 892 F.Supp. 1146 (W.D.Ark. 1995)
2. United States v. Engelhard Corp., et al (Civ. Action No. 6:95-cv-45, W.D.Ga., Filed June 12, 1995).
Challenges Of The Current Merger Wave
Wednesday, October 25, 1995
Updated June 25, 2015