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Assistant U.S. Attorney General Charles James late Monday rescinded the controversial merger clearance accord between the U.S. Federal Trade Commission and the U.S. Department of Justice, handing a major victory to Sen. Ernest Hollings, D.-S.C., and consumer advocates. “The department stands by its view that the agreement was good public policy that was working to make antitrust enforcement more effective,” James said in a statement. “However, in view of the opposition expressed by Sen. Hollings, chairman of the Commerce, Justice and State Appropriations Subcommittee, to the agreement and the prospect of budgetary consequences for the entire Justice Department if we stood by the agreement, the department will no longer be adhering to the agreement.” The decision by the Department of Justice to withdraw from the accord comes as the FTC had been seeking a compromise with Hollings to resolve his concerns that the FTC would no longer review any media mergers. The plan presented Thursday to the senator called for the FTC to review one-third of major media deals. In exchange for gaining partial oversight of media mergers, the FTC would likely relinquish to the Department of Justice primary antitrust jurisdiction over military airframes, helicopters and munitions, two sources said. A spokesman for Hollings declined to comment. James said that since the agreement took effect in March, merger clearances were taking just days, compared with weeks under the old system. “There were no clearance disputes between the agencies,” James noted. David Balto, a partner at White & Case in Washington, D.C., agreed, saying the decision to kill the accord is unfortunate. “The agencies’ efforts to reform the clearance system were laudatory and ultimately benefited consumers by making the merger review process more efficient,” Balto said. “It is also an unfortunate precedent on the extent that Congress can second guess administrative agency decisions.” Yet Balto said the antitrust division and FTC could informally follow the accord simply in the way they allocate deals between them. “At the end of the day the agencies will still make something close to the same allocation of cases,”‘ he said. “Congress can’t review every clearance decision in media markets.” The antitrust agencies in March revamped the system used to allocate merger reviews between them. Part of the revision included clarifying which has primary jurisdiction to review deals for specific industries. The intent of the accord was to reduce the time wasted in deciding whether the FTC or antitrust division would review a merger. Clearance fights often ate up two to three weeks of the 30 days the agencies have to decide if the merger warrants issuance of a second request, which is a formal demand for more details on a deal. Second requests are expensive to comply with and often delay deals for months. With so much time spent on the clearance, the agencies often had to issue second requests in order to gain enough time to complete their preliminary reviews. Consumer advocates were outraged by the accord, however, because it specified that the Department of Justice would review deals involving the media and entertainment sector, including cable services, satellite services, radio and television broadcasters, publishing, newspapers, magazines, movies, movie theaters, upstream video distribution, advertising, music, toys and games, gaming and sports. Advocates prefer the FTC to review media deals because decisions are made by five independent commissioners rather than by a single individual. With five commissioners, advocates argue, they have a better chance of ensuring the public’s interest is protected. Hollings has championed the cause of the consumer advocates, threatening to cut funding for all FTC political appointees unless the accord is changed. This threat, combined with budget troubles caused by lower-than-expected Hart-Scott-Rodino Act merger filing fees, has put pressure on the agency to find a solution. The antitrust agencies apparently decided that Hollings’ staff was demanding too much in negotiations. Sources said Hollings’ staff from the Senate Commerce Committee and from the Senate Appropriations subcommittee responsible for the antitrust agencies had taken the lead in the negotiations. Sources said staff had initially indicated that a one-third/two-thirds division would be sufficient, but they recently have been pushing for a 50-50 split for media deals. A separate source said Hollings’ staff also wanted the antitrust agencies to alternate merger reviews in as many as four other industries, though the source declined to provide more details. It was unclear whether the accord would be revived. A source said the one-third/two-third division of media deals offered to Hollings was determined by calculating the maximum number of media mergers reviewed by the FTC during the past 10 years. This was then transformed into a percentage of all major media deals reviewed by either agency. The number came out to 25 percent but was raised to one-third. The agencies also had calculated the percentage of resources devoted by the FTC and antitrust division to media mergers in the past five years. They were able to do this because they record the amount of staff hours devoted to each case. Of all the resources devoted to media antitrust investigations, 90 percent were spent by the Justice Department and 10 percent by FTC. When the accord was released in March, the agencies said the Justice Department was given media responsibility because it already was handling the vast majority of transactions in that sector. The proposal to Hollings also was expected to include a de minimis threshold for deciding whether a media deal is covered. The idea was for the Justice Department only to share jurisdiction over larger deals, likely those valued at more than $1 billion. The agencies also were considering exempting radio mergers, which the Justice Department has historically always reviewed. The antitrust agencies initially wanted to adopt the accord in January, but delayed it at the last moment after protests from Hollings, who complained he had not previously been consulted. In exchange for media, the FTC gained all of the energy sector and most of the biotechnology sector. Copyright (c)2002 TDD, LLC. All rights reserved.

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