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Corporate dealmakers may soon start yearning for the good old days when the Clinton administration ran the antitrust agencies. The Federal Trade Commission and Department of Justice have launched a torrent of merger litigation that eclipses anything that occurred during the tenures of former FTC Chairman Robert Pitofsky and former Assistant Attorney General Joel Klein. The agencies have sued to stop large deals, to undo mergers already completed and to punish companies that failed to fully comply with the Hart-Scott-Rodino Antitrust Improvements Act. The suits vary in basis from invoking traditional antitrust theories to novel approaches regarding market definitions and deal size. “I have never seen such a flurry of complaints,” said Tefft Smith, a partner at Kirkland & Ellis in Washington, D.C. “There has been unprecedented activity here,” agreed Joel Mitnick, a partner at Sidley Austin Brown & Wood in New York. “If this was a Democratic administration, people would be calling them activists.” The tough enforcement should not surprise dealmakers. FTC Chairman Timothy J. Muris and Assistant Attorney General Charles James have repeatedly said that they differ only at the margins from their predecessors and that they did not plan to loosen merger enforcement. Despite those ostensibly marginal differences, regulators have aggressively used litigation to confront anti-competitive deals. “There was a tendency to assume that the new administration would be more lenient,” said FTC Competition Bureau Director Joe Simons. “That was unjustified.” The FTC has ruffled the most feathers with its attacks on deals already closed. It has already won one 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. Still pending is the Oct. 10 suit against MSC.Software Inc. The FTC charged that MSC’s June 1999 acquisition of Universal Analytics Inc. and its November 1999 purchase of Computerized Structural Analysis and Research Corp. gave the simulation software company a monopoly for a product known as advanced Nastran solvers. It wants MSC to split its Nastran business into three units, two of which would be spun off as separate companies or sold. The case is expected to go to trial in June. The FTC on Oct. 25 sued Chicago Bridge & Iron Co., which in February bought Pitt-Des Moines Inc.’s water and engineering unit. The FTC charges the deal hurts competition for the construction of large water storage tanks, and it wants to undo the transaction. The agencies have wielded an equally heavy stick against open deals. The Department of Justice threatened to block General Dynamics Corp.’s acquisition of Newport News Shipbuilding Inc. It also filed suit Oct. 23 to prevent SunGard Data Systems Inc. from buying the disaster recovery unit of Comdisco Inc. That case is set for trial Nov. 8. James also threatened July 27 to block UAL Corp.’s acquisition of US Airways Group Inc. and sued 3D Systems Inc. on June 6 over its acquisition of DTM Corp. That latter case settled Aug. 16 when the firm agreed to license technologies to create a new competitor in the market. The FTC voted unanimously Oct. 23 to block the acquisition of Vivendi Universal SA’s Seagram unit by Diageo and Pernod Ricard SA, charging Diageo would win too much control of the rum market. Beyond the litigated cases, the agencies also have entered nearly a dozen consent decrees in which merging companies have agreed to divest businesses to avoid an antitrust challenge. These range from the blockbuster Chevron Corp.-Texaco Inc. merger to smaller deals, such as Premdor Inc.’s acquisition of International Paper Co.’s Masonite division. Antitrust experts said these cases are remarkable because they involve aggressive interpretations of antitrust law. Both the MSC and Seagram cases rest on market definitions. In both reviews, the FTC defined the markets narrowly when it could have identified a broader market in which the transaction would not have been ruled anti-competitive. In Seagram, the FTC defined the market as rum products, rather than distilled spirits. The agencies have shown no mercy for violations of the Hart-Scott-Rodino Act. The Justice Department sued Computer Associates International Inc. on Sept. 28 for illegally coordinating activities with Platinum Technology International Inc. while their merger was under review. Justice is seeking $1.27 million in civil penalties for the so-called gun jumping offense. Hearst Corp. agreed Oct. 11 to pay $4 million to settle charges that it failed to disclose 4(c) documents in connection with its purchase of Medi-Span Inc. Under Section 4(c) of the HSR Act, companies must disclose analyses and other documents used to evaluate whether to proceed with the transaction. Also under attack is Boston Scientific Corp. A federal judge ruled Sept. 28 that the company did not abide by a 1995 FTC consent decree in connection with its acquisition of Cardio-Vascular Imaging Systems Inc. and Scimed Life Systems Inc. The judge still must determine a penalty. Why the sudden burst of litigation? Mary Azcuenaga, a former FTC commissioner who is now a partner at Heller Ehrman White & McAuliffe in Washington, said Muris and James may fear corporations would start flooding the agencies with anti-competitive deals in the mistaken assumption they would be more accommodating than the Clinton antitrust team. The best way to deter bad mergers is to file a spate of lawsuits early on that warn dealmakers that the antitrust enforcers are still at work, she said. “It is important to establish that credibility right upfront, and they have done that in a very aggressive and credible way,” Azcuenaga said. “People have to believe they will bring cases.” William Baer, a partner at Arnold & Porter in Washington, who headed the FTC’s competition bureau under Pitofsky, said the agencies also were worried that companies would view a recent lifting of the HSR filing threshold from $15 million to $50 million as meaning that any deal worth less than $50 million was exempt from review. “In the past very few deals which were nonreportable were challenged by the agencies,” Baer said. “That certainly led some to wonder when the threshold was increased to $50 million if anything below the threshold would be largely immune from enforcement.” Jonathan Baker, a professor at American University law school and a former FTC economic bureau director, said many of the challenges involved mergers that would reduce the number of competitors in a market to two or one. Such deals often are opposed by Republicans and Democrats, he said. “They are bringing cases where they believe it is a merger to monopoly,” Baker said. “Even in the least interventionist days of the Reagan administration, the agencies would have brought cases that were mergers to monopoly.” Baker said it will be enlightening to see which deals the FTC and Department of Justice allow to proceed. “It would be in the cases they did not bring that you would learn about them,” he said. So far that evidence is limited. The FTC deadlocked 2-2 on whether to challenge PepsiCo Inc.’s acquisition of Quaker Oats Co. and on General Mills Corp.’s acquisition of the Pillsbury business from Diageo. They also let Phillips Petroleum Corp. acquire Tosco Corp. without requiring divestitures. But these cases say little. Muris was recused because of a conflict of interest in the two tie votes. Also, several lawyers said the FTC would have been unlikely to challenge any of the deals if Pitofsky was still there. The only difference may have been the issuance of consent decrees rather than deadlocked votes, the lawyers said. For the foreseeable future, antitrust lawyers expect more litigation. “We were hoping to be this active,” the FTC’s Simons said. “We want to be very aggressive.” Copyright (c)2001 TDD, LLC. All rights reserved.

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