Significant Changes in Antitrust Law

A number of significant developments in recent times have changed the practice of antitrust law in mergers and acquisitions. These developments involve increased difficulty in completing mergers that are perceived at the outset as raising antitrust issues.

First, the US merger review process has become much more difficult to negotiate successfully and more adversarial. During the Clinton Administration, the agencies determined that they needed to do a better job in litigating merger cases, and as a result, they began to look to identify certain transactions as problematic from the start and to spend the investigation period building a litigation case. Prior to that time, while staffs were conscious that there might be litigation in the offing, they focused more of their investigation on determining whether to challenge, and at the end of the process scrambled to a greater degree to build their case. Now in conducting investigations, staff is seeking to identify and pin down witnesses with statements or testimony from early in the process. That makes it harder for lawyers trying to convince staffs not to bring a case. This approach appears to have continued in the second Bush Administration, and appears unlikely to change. The difficulty is exacerbated by the fact that competitors frequently retain antitrust counsel to bring concerns about mergers to the attention of the regulators. While such strategic behavior has always occurred to some degree, my impression is that organized opposition to mergers is more prevalent and merger opponents are more effective than in the past.

Second, it takes longer to resolve US merger investigations and the associated expenses have grown enormously. The amount of information that is reviewed in the process has expanded exponentially as a result of advances in information technology. There has been an explosion in the use of e-mail and electronic documents and data in corporations. With so much more information available, the governments desire to conduct a very thorough investigation means that literally gigabytes of data and hundreds (or in some cases thousands) of boxes of documents may have to be provided. Also, globalization has resulted in far more companies having offices and facilities abroad. Some companies now are truly international and multilingual, meaning that there is more occasion than ever before to produce documents that are written in a language other than English. In responding to Second Requests, the government takes the position that the parties must translate all documents in a language other than English. Translation of documents is very expensive and time consuming translation in mergers can cost hundreds of thousands or even millions of dollars and take months to complete. Unless superiors at the FTC and DOJ are willing to limit staffs far more significantly than they have to date, this means that investigations will continue to grow in terms of length and costs to the parties. This problem is of concern in larger mergers, but is particularly problematic for small transactions, where the investigation costs are far more likely to be material in terms of the overall value of the deal.

Third, the federal antitrust agencies are not the only players in the antitrust process any more. During a period of relative inactivity by the federal agencies in the latter part of the Reagan Administration, state attorneys general began launching investigations of transactions and bringing actions to block mergers. The states have remained active in this area ever since, although they now tend in the first instance to work jointly with the federal authorities, who have been more welcoming of state participation since the first Bush Administration. State involvement further complicates efforts to complete mergers because state attorneys general frequently have more expansive enforcement agendas than the federal agencies.

Fourth, globalization has had a far more profound effect on antitrust M&A practice than simply increasing costs and expenses of the US process. The number of jurisdictions that merger parties have to address has multiplied significantly. When I left the DOJ and entered private practice over 20 years ago, the United States was the only country in the world that might block a merger on antitrust grounds before it was completed. That has changed completely. In the 1980s, Canada revised its competition laws and interposed a pre-merger notification requirement that has led to many filings and a substantial number of investigations. The EU adopted its Merger Regulation in the early 1990s, and it has successfully encouraged its member states to adopt their own merger control laws for transactions falling below the ECMR thresholds, so that most EU member states now have their own provisions. The demise of the Soviet Empire and Soviet Union - and the collapse of many authoritarian regimes that employed controlled economies (both of the political left and right) in many other parts of the world - led to the adoption of antitrust laws and frequently merger control provisions. Today, there are more than 70 countries that have pre-merger notification requirements in the Americas, Europe, South Africa, Israel and Asia (even China has adopted a merger control regime that applies to foreign companies and is working on a full set of antitrust laws).

The proliferation of merger control has created additional burdens. There are now many more filing requirements that have to be evaluated and many more filings that have to be made before a merger can be completed. There are more investigations, which means far higher transaction costs for completing mergers. It also means that there is a strong need for hiring antitrust counsel in several countries and having them coordinate their efforts to some degree, since the agencies are regularly working in tandem and sharing information in investigations, frequently pressuring parties into limited waivers of the confidentiality protections that would otherwise preclude such sharing of information among competition law agencies. There are now more jurisdictions that are capable of stopping a merger in its tracks prior to consummation, and even what have been widely regarded as US transactions have been stopped. In recent years, the EU stopped the GE/Honeywell merger and imposed significant conditions before allowing the Boeing/McDonald Douglas merger to proceed; conversely, the DOJ stopped the merger of the leading British and French industrial gas companies. Having more hurdles to clear means there is a greater risk that transactions will be stopped or that divestitures will be required that would not have occurred in the past.

In recent years, there have been efforts to address the various problems that I have noted. The FTC and DOJ has periodically announced reforms of the HSR process that result in more streamlined Second Requests and in procedures to avoid full investigations in appropriate cases through the limited initial investigation of potentially dispositive issues such as contentions that entry is easy. In the past, these efforts have resulted in some improvements at the margin, but far less than business and the antitrust bar have sought, and even the limited gains have proved transient. Antitrust enforcers have responded to concerns about the proliferation of merger control around the world through various initiatives which to date have had only limited private party input and have focused a great deal on improving antitrust enforcement techniques and seeking harmonization ( certainly worthy goals) and much less on reducing burdens on merger parties.