Litigating Merger Cases


Litigating Merger Cases

Despite the best of efforts, there are cases in which the government cannot be convinced that the merger does not raise problems or should be allowed to proceed with divestitures. So there are merger cases in the US where it is necessary to litigate with the government.

Where the government is ready to litigate, the client has the option of settling (where acceptable terms can be reached), abandoning the deal, or litigating. From the defendants standpoint, whether a merger case will settle or go to trial depends on a number of factors including the strategic importance of the merger at the time of litigation, the odds of prevailing against the government, and whether there is a contractual undertaking to litigate. The substantial cost of litigation can be an important factor. Antitrust merger cases are unavoidably expensive, involving substantial discovery conducted in a very short time frame, an expedited hearing, and substantial briefs and supporting papers. This is true to a substantial degree whether the deal is large or small. A company dealing with a $50 million deal may be adverse to spending several million dollars to litigate when that level of expense wouldnt cause as much concern in a much larger deal.

In recent years , the federal antitrust authorities have won most but not all of their merger cases. This is not terribly surprising. The government has a great deal of discretion that allows it to pick the cases to bring and to refrain from pursuing cases that do not look winnable . Also, the agencies spend a great deal of time developing their litigation position during the merger review process so that by the time an investigation is completed they already may have witnesses and exhibits lined up for trial, while the parties havent had access to a great deal of that information. For these and other reasons, the government should win most of its merger cases. However, there are times when the government chooses to litigate what ultimately proves not to be a very strong case.

Litigated merger cases in recent years tend to occur where there is a highly concentrated market and there are very few participants in the overall market. In the past decade , the FTC and DOJ have focused particularly on situations where the products or services offered by the merging parties are particularly close substitutes and there are arguably a very small number of close substitutes offered by third parties. In almost all recent litigated antitrust merger cases in the US, the government has characterized the merger as reducing the number of firms to whom a substantial set of customers can turn to a very small number (typically, from three to two), and contended that entry into the limited group of suppliers who can serve these customers is difficult.

Parties in litigated merger cases have responded to such arguments by contending that the governments view of the market is unduly narrow and ignores the fact that customers actually have many more than the three premerger choices identified by the government. When Office Depot and Staples sought to merge several years ago, the FTC argued that the market was limited to office supplies sold through office superstores, and that there were only three big players in that market.

The parties countered that office supplies were sold through so many retail outlets that if the market were defined as the total retail sale of office supplies, there couldnt be an antitrust problem. The government prevailed because the district court was convinced that there was strong evidence (in the form of internal party documents, a book by Staples founder, and econometric data) that office superstores priced lower than other retail outlets and only looked at other office superstores in setting their prices.

A different result was obtained two years ago, when the DOJ challenged a merger of two companies engaged in the disaster recovery business. These companies help corporations safeguard their information and computer systems in the event of a natural disaster or terrorist attack. The government argued there were only three companies in the market for providing remote disaster recovery sites that come into place when a corporations system goes down. The defendants countered that while there were three companies who provide disaster recovery services in this particular manner, there were many other ways of doing disaster recovery. The parties argued that they actually competed with many third party vendors who did disaster recovery in other ways, and that they also competed against people doing it themselves . The court ultimately ruled for the defendants in what it described as a very close case.

The prospects for success in a merger case depend on many factors. Probably the most important is the identity of the federal district court judge who will decide the case. Federal judges have a great deal of discretion in determining the extent and form the preliminary injunction case will take including whether and to what extent there will be live testimony as opposed to written testimony and reliance on depositions and affidavits. The judge will decide how much pre-hearing discovery to allow, which can be critically important to the defendants who typically do not learn the identity of the governments witnesses until the litigation is commenced and who often seek third party discovery in order to provide a basis for cross-examination of the governments witnesses. The judge has considerable discretion to determine the duration of the proceeding, and the defense lawyers have important strategic decisions to make about how much time they want for the litigation. This frequently involves trade-offs between having more time to prepare the defense as against the benefits that may accrue in certain cases from holding the governments feet to the fire. Most important, an appeal of a federal district judges decision to enjoin or deny an injunction in a government merger case is reviewed on an abuse of discretion standard, and given that many government cases that are litigated end up being close cases that could go either way, the trial judges decision, if well thought out, is frequently considered unlikely to be reversed , and hence will often be the final decision in the case. One notable recent exception is the so-called baby food case in which the FTC lost its motion for a preliminary injunction blocking the merger of Heinz and Beechnut in the district court, but won the case on appeal in the D.C. Circuit.




Inside the Minds Stuff - Inside the Minds. Winning Antitrust Strategies
Inside the Minds Stuff - Inside the Minds. Winning Antitrust Strategies
ISBN: N/A
EAN: N/A
Year: 2004
Pages: 102

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