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The Bush administration appears to be laying the groundwork for potentially important changes in merger policy, though so far it has maintained the tough enforcement philosophy of the previous administration. CLEANING HOUSE Since taking the oath of office Jan. 20, Bush has installed Charles James as assistant attorney general for antitrust at the Department of Justice, Timothy J. Muris as Federal Trade Commission chairman, Michael Powell as Federal Communications Commission chairman and Harvey Pitt as Securities and Exchange Commission chairman. All have questioned some of the more aggressive merger enforcement decisions of their predecessors — Joel Klein at Justice, Robert Pitofsky at FTC, William Kennard at FCC and Arthur Levitt at the SEC. Though the tenure of the Bush team varies from nearly a year for Powell to only a few months for Pitt, the four regulators have initiated programs or unveiled visions for their agencies with a Bush spin. These vary from greater reliance on different economic theories to greater attention to different units within the agencies. THE LONG HAUL Don’t expect quick action. Results will not be apparent for one or two years, Washington experts said. The FTC expects to complete by the end of 2002 a study of enforcement decisions, including whether efficiencies claimed by merging corporations actually materialized. The study also will examine whether the agency made the right call in declining to challenge a deal. Antitrust lawyers said the study could provide the agencies with an empirical basis to more readily accept the so-called efficiency defense, which holds that some anti-competitive deals are acceptable if cost savings are high enough and ultimately are passed on to consumers. Economists at the FTC and antitrust division also question whether antitrust enforcement relies too heavily on the “unilateral effects” theory of economics rather than on the so-called coordinated interaction theory. Under the unilateral effects model, a deal is anti-competitive if the merging companies could profitably raise prices by a set percentage, typically 5 percent. Coordinated interaction examines whether the loss of a rival would make it easier for the entire industry to profitably raise prices. The difference is subtle but significant. It is much tougher to prove an entire industry would raise prices than to determine whether a merged company could hike prices. An increased reliance on the coordinated interaction theory could make it tougher to challenge deals. Critics of greater reliance on coordinated interaction argue that this economic approach to evaluating mergers would have made it impossible to challenge the Staples Inc.-Office Depot Inc. merger, which the FTC in 1997 successfully blocked in court. That is because there were too many products involved to show that industry would coordinate their pricing and thus cause consumers to pay more for paper and pens. “It is tougher to bring a coordinated interaction case,” said attorney David Balto, a partner at White & Case in Washington. “You can’t just rely on market shares. That makes enforcement harder.” FASTER REVIEWS At the Justice Department, James is trying to mitigate the common perception that the antitrust agencies are responsible for delaying deals for months. He has instituted a program that promises faster reviews in exchange for speedier disclosure of relevant documents. Both agencies are strong backers of the International Competition Network, which hopes to harmonize global antitrust policy by advocating best practices and training antitrust officials in developing countries. Creation of the ICN came just a few months after the United States and Europe erupted in a war of words over General Electric Co.’s acquisition of Honeywell International Inc. U.S. regulators approved the deal; the EU rejected it. Some lawyers said the ICN could eventually lead to a common premerger filing system worldwide, though that goal is likely years away. Antitrust experts said they expect few changes at FTC or the Justice Department despite these initiatives. “If there was going to be a pronounced change for less vigorous enforcement, then you would have seen it pretty quickly,” one former regulator said. Rather, they expect the changes Muris and James are implementing to affect only a few deals a year. At the FCC, Powell in the past few months has initiated several rulemaking proceedings that could radically change media ownership rules. One proposal, issued Nov. 8, would study whether rules limiting radio ownership are too strict and whether new measures should be used to calculate market power. The agency in early November created a media working group to develop empirical support for how the FCC should ensure competition, diversity and local control of broadcast media. It also issued notices Sept. 13 questioning whether the current ban on simultaneous ownership of a newspaper and broadcast station in the same market makes sense and whether the government should retain or modify an existing cap on the percentage of homes any single cable provider may serve. One former FCC official said that the surprise is not Powell’s reform efforts — most of these changes were inevitable and likely would have occurred under either a Democratic or Republican administration — but rather how long it took him to initiate the regulatory reviews. “He could have started all these proceedings in January,” the former official said. “Instead he waited until the fall.” Powell likely waited to build support within the agency for reform and wait for Bush to fill commission vacancies. But the loss of time could haunt him if opposition builds and the president fails to win re-election. Powell’s failure to quickly capitalize on Bush’s victory may mean he has lost the chance to put his stamp on the agency, the former official said. The FCC chairman’s projects will start bearing fruit only after the agency already is in the middle of a wave of consolidation brought on by court rulings and technological developments. “Historically this will be known as the period of consolidation,” the former official said. “But there would have been consolidation also under a Gore administration.” At the SEC, Pitt is widely expected to streamline the rules governing prospectuses, with the goal of getting deals through the agency quicker. Yet Bush waited more than six months before announcing Pitt’s appointment, and he has yet to undertake any major initiatives. “I’m certain that in 2003 you will see something different at the SEC,” the former official said. “Not in 2002.” The biggest change will likely be the elevation of corporate finance, which under Levitt had a lower profile than enforcement and market regulation. “Corporate finance will become the powerhouse part of the SEC under Pitt because he sees it as central to capital raising,” the former official said, adding that Pitt will streamline rules and cut impediments to accessing the markets for capital. “He’ll try to cut out the scrub brush.” The changes are expected despite what appears to be a continuation of Clinton policies by the four agency heads. “If the measure is, if Al Gore had been elected would things be different, then the answer is, maybe marginally different, but not that much,” one Washington, D.C., lawyer said. At the antitrust agencies, enforcers are setting records for litigation. The Justice Department on Oct. 22 sued, though unsuccessfully, to stop SunGard Data System Inc.’s acquisition of Comdisco Inc.’s disaster recovery unit, deterred UAL Corp. from buying US Airways Group Inc. by threatening to block the deal and sided against General Dynamics Corp.’s deal for Newport News Shipbuilding Inc. Meanwhile, the FTC in October sued MSC.Software Corp. to undo its acquisition of two design software makers and sought to void Chicago Bridge & Iron Co.’s purchase in February of Pitt-Des Moines Inc.’s water and engineering unit. The agency has already won a case. Airgas Inc. agreed Oct. 26 to divest a nitrous oxide business to resolve charges that its $90 million acquisition of Puritan Bennett Medical Gas in January 2000 resulted in a monopoly. At the FCC, Powell is just starting to review a series of rules that severely restrict who may own radio and television stations. The review is being forced by the courts, which have struck down several agency regulations for the cable and television industry. Despite these rulings, which represent opportunities to revise standing policy, Powell is moving cautiously. Pitt has had the least amount of time of the four to act. Sworn in just a few months ago, he is still installing his team at the SEC. In the interim, securities lawyers say there is little visible difference today versus a year ago. Albert Foer, president of the American Antitrust Institute, said the next 12 months to 24 months should reveal the Bush team’s true philosophy. “They’ve succeeded in establishing a rhetorical basis of who they want us to believe they are,” Foer said. “But we don’t have a real feel yet for who they really are.”

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