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A perfect storm of politics and litigation may give companies involved in mergers next year their biggest advantage in decades over the U.S. Department of Justice and the Federal Trade Commission. President George W. Bush’s re-election and the increased GOP majorities in Congress offer the business community more avenues to use their political influence to pressure antitrust enforcers. At the same time, the antitrust agencies enter settlement negotiations from a weakened position. The FTC and the Justice Department have lost the last three merger challenges. Some lawyers are betting that the agencies will accept less relief in settlement talks to ensure they don’t lose a fourth or fifth time in a row. “Lawyers may very well try this stuff,” one antitrust expert says. All of this comes at a time when merger activity is on the upswing. Hart-Scott-Rodino Act filings rose 40 percent for the 2004 fiscal year. That trend has only accelerated. Sources say HSR filings climbed 75 percent in October 2004 compared with the previous year. Economists also predict that the economy will continue to grow in 2005, and many investors expect more mergers in coming months. For acquisitive companies, the political and regulatory environment is liable to be markedly different than what they faced Jan. 1, 2004. Back then, the Justice Department was coming off a major victory in its challenge to the First Data Corp.’s $7 billion acquisition of Concord EFS Inc. After refusing to settle for months, First Data capitulated on the eve of trial, agreeing to sell a processing unit at the heart of the Justice Department’s case. The FTC was also riding high. An administrative law judge had sided with the FTC staff and ordered the Chicago Bridge & Iron Co. to divest the engineered construction division of Pitt-Des Moines Inc. This followed successful litigation involving technology company MSC.Software Inc. and glassware and utensil maker Libbey Inc. Much has changed in the last 12 months. Deborah Majoras, who had been overseeing all civil antitrust matters at Justice, left the government in January only to return in August as FTC chairman, replacing Timothy Muris. FTC Commissioner Mozelle Thompson also was replaced in August by Jon Leibowitz, a former top Democratic aide to the Senate Judiciary Committee who most recently was a lobbyist forthe Motion Picture Association of America. At the Justice Department, new deputies became firmly established in their jobs, including Makan Delrahim, a former aide to Senate Judiciary Committee Chairman Orrin Hatch (R-Utah), for international and legislative matters. Lawyer Thomas Barnett took over civil antitrust, while David Higbee became chief of staff. More broadly, after his victory at the polls, President Bush has installed some of his closest allies in positions of power. One of them, Alberto Gonzales, will shift from the White House counsel’s job to be the next attorney general. Republicans have also tightened their grip on the Senate and House, allowing them to impose their will on the Democrats. LEGAL SETBACKS On the legal front, the antitrust agencies suffered three major defeats in less than a month. A federal judge in Washington, D.C., declined in August to block Arch Coal Inc.’s acquisition of the Triton Coal Co., concluding that the FTC failed to prove that other mining companies would collude in raising coal prices. The case is now back before the FTC. A few weeks later, Justice lost its case challenging the Dairy Farmers of America’s right to own stakes in two rival dairies in Kentucky. The judge in the case ruled it legal for a company to have 50 percent stakes in two competitors as long as the stockholder does not exert control. The case is currently on appeal. The final blow occurred in Justice’s high-profile challenge to the Oracle Corp.’s attempted acquisition of PeopleSoft Inc. Judge Vaughn Walker of the U.S. District Court for the Northern District of California found in September that the deal would not permit Oracle to illegally raise prices. He also rejected the testimony of customers that had complained about the merger. Several antitrust experts say they expect the political changes and the failed merger challenges to embolden companies to take a more aggressive posture with antitrust enforcers. And corporate lawyers are likely to comply. None want to concede that they could not pull off a victory akin to what Latham & Watkins’ Dan Wall did in the Oracle case or Howrey Simon Arnold & White’s Brad Reynolds did in Arch Coal. “The clients will be driving this,” one attorney says. “How can a private lawyer say, ‘Dan Wall won one against the government, but I won’t go to the mat for you’?” LITTLE DEFERENCE FOR ENFORCERS Whether this aggressiveness will translate into different merger enforcement outcomes remains a matter of debate. Leibowitz says it will not influence the FTC. “It would not surprise me if a few in the defense bar raise the chatter level,” he says. “After all, this is Washington. But it won’t change anything. The commission will still vigorously pursue anticompetitive conduct.” Another lawyer says the political threat is less significant than the legal one. Clients often hire lobbyists to pressure the agencies. But most antitrust lawyers strongly discourage this tactic, arguing that enforcers often see lobbying as a sign that a deal has competitive problems. Even when lobbyists do get involved, their influence is suspect. Typically, they can get a sympathetic lawmaker to write the agency and express an interest in the outcome and obtain a briefing from the staff. But legislators do not generally demand that regulators approve specific mergers, the lawyer says. The FTC and the Justice Department are still seen as law enforcers, which provides some protection. That’s because Capitol Hill still believes it’s improper to interfere with law enforcement. Yet political pressure can push the agencies into investigating particular mergers. Several experts point to the intense scrutiny given to oil industry and agribusiness deals, both sectors that garner significant attention on Capitol Hill. Such transactions almost always get close reviews even though competition in these sectors remains relatively robust. Others also question if the FTC and the Justice Department will continue to be regarded as law enforcers that should be insulated from political interference. One source says that Sen. Ron Wyden’s (D-Ore.) decision to block for months the nomination of Majoras to the FTC without incurring meaningful political repercussions indicates that some no longer believe antitrust enforcers deserve special status. Others believe that since passage of HSR a quarter-century ago, the agencies have gone from enforcers to mere regulators, which could reduce the deference they receive on Capitol Hill. On the ground, that means Sen. Wyden’s attack on the FTC may no longer be an anomaly. It’s unclear how such developments will manifest themselves in years to come as the agencies investigate controversial deals. For merging companies, though, even a small edge could be significant. “I’d say to my clients that the odds are a little bit better for us,” says one lawyer. Jaret Seiberg is Washington bureau chief at The Deal , a New York publication affiliated with ALM, where this article first appeared.

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