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Deutsche Telekom AG’s possible bid for Sprint Corp. or VoiceStream Wireless Corp. has created some strange bedfellows. Since Westwood, Kan.-based Sprint’s planned merger with Clinton, Miss.-based WorldCom Inc. collapsed last month, Sen. Ernest Hollings, D-S.C., has been railing against the possibility that a foreign, government-owned telecom, such as Germany’s DT, would buy an American telecom. Citing national security concerns, Hollings introduced a bill that would bar DT and any other company that is more than 25% government-owned from buying telecom assets in the U.S. Current law already prohibits the transfer of U.S. Federal Communications Commission licenses to such government-owned entities. What Hollings’ bill would do is close any loopholes or exceptions that would allow that law to be waived. It’s unclear whether Hollings’ legislation would apply to VoiceStream. Congress rarely passes new legislation so close to an election, so Hollings ordinarily would seem to be tilting at windmills. He didn’t help his cause much by lining up just four co-sponsors — all of them Democrats — before introducing the bill. But Hollings’ hand has strengthened in the last few days. Three more lawmakers, including two Republicans, have signed on to the bill, and a score of other senators have joined the crusade. A total of 30 senators signed Hollings’ letter urging that FCC Chairman William Kennard “highly scrutinize” a bid from a company such as DT. Of those 30, seven are Republicans, including a few eyebrow-raisers. Even Senate Majority Leader Trent Lott, R-Miss., signed the letter. As tough as lawmakers were on the WorldCom-Sprint deal, it doesn’t look like they’re going to be any softer on a DT bid for any U.S. target. “A strong No. 2 player is clearly better for consumers” sounds like the mantra that WorldCom and Sprint officials used to try to win Justice Department approval for their merger, but it actually came out of the mouths of the corporate types at H.J. Heinz Co. and Milnot Holding Co. last Friday. Heinz and Milnot tried — and, like WorldCom and Sprint, failed — to convince the U.S. Federal Trade Commission that the No. 2 and 3 makers of baby food should be permitted to combine, so they could more effectively combat Novartis AG’s Gerber unit, which controls 70% of the U.S. market. What made the companies involved in both mergers so bold? The so-called efficiency defense, which can be applied to a deal when the synergies resulting from it are so overwhelming that they eliminate the anti-competitive aspects of the merger. In the Heinz-Milnot situation, the resulting efficiencies would create an entity from two companies that by themselves are too small to challenge Gerber. Regulators clearly aren’t buying into the argument, and two high-profile cases that have been rejected so close to each other certainly should warn top players in a market that deals based on the defense are likely dead on arrival. The Exxon Corp.-Mobil Corp. deal closed weeks ago, but fallout from it continues. Witness the sell-off of 1,740 East Coast gas stations to Tosco Corp. The Service Station Dealers of America is livid at Tosco, which as part of its purchase of the outlets agreed to give the operators the right of first refusal to purchase the business. Roy Littlefield, executive director of the group, said Tosco sent out statements about 45 days ago that valued the stations at replacement cost, which is usually double and sometimes triple the so-called current use, or fair market, value. For one Maryland station, for example, the fair-market value is $890,000, but the replacement cost is $2.25 million. The dealers association has brought its case to the U.S. House Commerce Committee and the FTC, hoping the two bodies will convince Stamford, Conn.-based Tosco to lower its station valuations, Littlefield said. If they can’t, expect litigation over whether or not Tosco breached their agreement with the gas station operators. “It is very close to going to court,” Littlefield said. A Tosco spokesman declined to comment. Wall Street has been saying for months that the U.S. Financial Accounting Standards Board’s plan to eliminate a favored merger- accounting technique will make little difference for merger-related costs, so the FASB should be able to get rid of pooling-of-interest accounting without disrupting the markets one bit. Not so, according to Patrick E. Hopkins, a professor at Indiana University’s Kelley School of Business. Hopkins told the FASB last Wednesday that analysts do tend to assign a higher value to companies that use pooling accounting because pooling does not penalize companies for paying high purchase premiums. The study also found analysts tended to home in on a new figure the FASB has proposed including in financial statements that would strip out purchase premiums impact. All of that should please technology companies, which have pressed the FASB not to drop the pooling method, claiming analysts unfairly will punish them for mergers. Tech companies also are major proponents of the new financial statement figure. The anti-trust division at the DOJ has added a new chief economist just in time to review the UAL Corp.-US Airways Group Inc. merger. Joseph V. Farrell replaces Timothy Bresnahan, who returned to Stanford University to teach economics. Prior to taking over as deputy assistant attorney general for economic analysis, Farrell taught at rival University of California, Berkeley, and he has served as chief economist to the FCC. While a wave of mergers among banks, insurers and securities firms has yet to occur since passage last year of the Gramm-Leach-Bliley Act, financial services industry convergence does appear to be taking hold elsewhere. A broad coalition of financial-service groups issued a statement lauding the House and Senate agriculture committees for approving bills that would improve legal certainty for over-the-counter derivatives. The joint statement shows how the industry is beginning to create a single front on policy issues. Absent were the insurance industry trade groups. Guess they have not yet learned to play with their industry peers.

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