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Chicago Bridge & Iron Company N.V. is destined to enter the annals of merger enforcement law. In mid-November the company appeared before the five members of the Federal Trade Commission to argue that an administrative law judge erred in concluding that its 2001 acquisition of the engineered construction division of Pitt-Des Moines Inc. was illegal. The stakes for FTC staff and for Chicago Bridge, which is headquartered in The Woodlands, Texas, could not be higher. The FTC seeks validation of its authority to undo completed mergers, while the company is fighting to retain an acquisition that it has already fully integrated into its business. As David Balto, a partner at law firm White & Case in Washington, D.C., says: “This is a really big deal.” However the commissioners rule, the decision will become a merger-challenge precedent. If Chicago Bridge loses, the company is expected to ask the federal appeals court to intervene. It could eventually seek U.S. Supreme Court review, which would give the justices their first merger case in more than two decades. Underlying the fight is the FTC’s return to its judicial roots. Although the agency is more often viewed as a regulatory enforcer, the five commissioners are also empowered to sit as a tribunal to decide merger challenges. For years the agency regularly conducted administrative proceedings as it helped shape merger law. Then came the Hart-Scott-Rodino Act in the 1970s, which forced companies to notify the agency before they merged. This shifted disputes to federal court since the FTC is not authorized to issue injunctions to prevent mergers. Rather, it only may order relief after a deal has closed. During the Clinton administration, then�FTC chairman Robert Pitofsky radically reformed the administrative process to require that most cases take only a year from the filing of a complaint to the administrative law judge’s ruling. Congress in 2001 also raised the HSR filing threshold to $50 million, which meant fewer deals were subject to preclosing notification. The result has been a resurgence in FTC administrative litigation. Sources have said that the agency has investigated dozens of completed mergers in recent years, filing suit in two cases. Chicago Bridge is the first merger case to reach the commissioners, and its resolution could well determine whether the agency uses the administrative process to challenge other consummated mergers. When Chicago Bridge entered the 90-minute argument, it was already behind in the case. The administrative law judge ruled in June that the Pitt-Des Moines acquisition was illegal. He ordered the company to divest assets and to establish a new competitor in the market for constructing massive, pressurized gas storage tanks. The debate before the commissioners involved both how to determine if the deal was anticompetitive and how to structure a remedy if the FTC declares the combination illegal. Representing Chicago Bridge, Duane Kelley of Winston & Strawn argued that the judge wrongly ignored evidence that competition has thrived in the two years since the merger was completed. “This case is unique,” he said. “We’ve had the chance to test that evidence against two years of market data.” This data shows that foreign builders with massive backing, teamed with U.S. construction companies, have provided competition, Kelley argued. “The market has changed,” he said. But FTC lawyer J. Robert Robertson countered that such evidence is irrelevant because the merger united the number one and number two domestic players, both of which were the low-cost providers in the market. Foreign firms may have won contracts since the merger, Robertson said, but that is only because prices have risen so much that bids by overseas companies are now competitive with what Chicago Bridge would charge to build a tank. “Entry must occur at predeal prices, not postdeal,” he said. Antitrust experts say that the way the FTC resolves this aspect of the case is pivotal because companies almost always can point to other firms trying to enter a market. What matters is how the FTC commissioners determine if the entry of other providers restores competition. The other key aspect of the case centers on potential antitrust remedies. The FTC staff asked the commissioners to require Chicago Bridge to divest not only facilities, but also a portion of its tank construction contracts and the personnel required to build and design these structures. Only such a comprehensive solution could restore the competition lost from the merger, Robertson said. But Kelley argued that the FTC is demanding too much. Restoring competition, he said, only required a new competitor to have customer lists, some marketing employees, and technical specifications for tank design. A more radical assault on Chicago Bridge is unnecessary, he argued. That prompted a question from FTC commissioner Thomas Leary. “Isn’t the point to restore lost competition, not just create a company that could or could not make it?” he asked. Kelley responded that there is no precedent for forcing Chicago Bridge to pay large sums to break commercial contracts so they could go to the new company, or pay employees a year’s salary to join the new entity. White & Case’s Balto says that how the commissioners rule will be significant because the courts have historically given antitrust enforcers significant leeway to restore competition eroded by a merger. But those decisions predate Hart-Scott-Rodino. The FTC did not challenge the Chicago Bridge deal prior to its closing, notes Balto, and that may affect how much discretion the courts will give the agency in structuring relief. The FTC commissioners are expected to release their decision early in 2004. A version of this story originally appeared in The Deal, a sibling publication of Corporate Counsel.

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