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Chicago Bridge & Iron Co. may soon be destined to enter the annals of merger enforcement law. The company appeared Wednesday before the five members of the Federal Trade Commission to argue that an administrative law judge erred in concluding that its 2001 acquisition of the engineered construction division of Pitt-Des Moines Inc. was illegal. The stakes for both Chicago Bridge and the FTC staff could not be higher. The company is fighting to retain an acquisition that it already has fully integrated into its business, while the FTC staff seeks validation of its authority to undo completed mergers. “This is a really big deal,” said David Balto, a partner at law firm White & Case in Washington. However the commissioners rule, the decision will become a merger-challenge precedent. If Chicago Bridge loses, the company is expected to ask the federal appeals court to intervene. It eventually could seek Supreme Court review, which would give the justices their first merger case in more than two decades. Underlying the fight is the FTC’s return to its judicial roots. Although the agency is more often viewed as a regulatory enforcer, the five commissioners also are empowered to sit as a tribunal to decide merger challenges. For years the agency regularly conducted administrative proceedings as it helped shape merger law. Then came the Hart-Scott-Rodino Act in the 1970s, which forced companies to notify the agency before they merged. This shifted the fight to federal court since the FTC is not authorized to issue injunctions to prevent mergers. Rather, it only may order relief after a deal has closed. During the Clinton administration, then-FTC Chairman Robert Pitofsky radically reformed the administrative process to require that most cases take only one year from the filing of a complaint to the administrative law judge’s ruling. Congress in 2001 also raised the HSR filing threshold to $50 million, which meant fewer deals were subject to pre-closing notification. The result has been a resurgence in FTC administrative litigation. Sources have said that the agency has investigated dozens of completed mergers in recent years, filing suit in two cases. Chicago Bridge is the first merger case to reach the commissioners, and its resolution could well determine whether the agency uses the administrative process to challenge more consummated mergers. Chicago Bridge entered the 90-minute argument already behind in the case. The administrative law judge ruled in June that the Pitt-Des Moines acquisition was illegal, and he ordered the company to divest assets and establish a new competitor in the market for the construction of massive, pressurized tanks used to store natural gas, oxygen and other gases. The debate before the commissioners involved both how to evaluate if the deal is anti-competitive and how to structure a remedy if the FTC declares the combination illegal. Representing Chicago Bridge, attorney Duane M. Kelley of Winston & Strawn argued that the judge wrongly ignored evidence that competition has thrived in the two years since the merger was completed. “This case is unique,” he said. “We’ve had the chance to test that evidence against two years of market data.” Foreign tank builders are teaming up with U.S. construction companies to win bids to build massive LNG storage facilities, Kelley said. “The market has changed,” he said. “The global companies with huge backing have come in and been accepted.” But FTC lawyer J. Robert Robertson countered that such evidence is irrelevant because the merger united the No. 1 and No. 2 domestic players, both of which were the low-cost providers in the market. Foreign firms may have won contracts since the merger, Robertson said, but that is only because prices have risen so much that bids by overseas companies are now competitive with what Chicago Bridge would charge to build a tank. “Entry must occur at pre-deal prices, not post-deal,” he said. Antitrust experts said that how the FTC resolves this aspect of the case is pivotal because companies almost always can point to other firms trying to enter a market. What matters is how the FTC commissioners determine if the entry of other providers restores competition. The other key aspect of the case centers on potential antitrust remedies. The FTC staff asked the commissioners to require Chicago Bridge to not only divest facilities, but also a portion of its tank construction contracts and the personnel required to build and design these structures. Only such a comprehensive solution could restore the competition lost from the merger, Robertson said. But Kelley argued that the FTC staff is demanding too much. To restore competition means a new competitor needs customer lists, some marketing employees and technical specifications for tank design, he said. A more radical assault on Chicago Bridge is unnecessary, he said. That prompted a question from FTC Commissioner Thomas B. Leary. “Isn’t the point to restore lost competition, not just create a company that could or could not make it,” he asked. Kelley responded that there is no precedent for forcing Chicago Bridge to pay large sums to break commercial contracts so they could go to the new company or to pay employees a year’s salary to join the new entity. Balto said how the commissioners rule here will be significant because the courts historically have given antitrust enforcers significant leeway to restore competition eroded by a merger. But those decisions pre-date Hart-Scott-Rodino. That the FTC did not challenge the Chicago Bridge deal prior to its closing may affect how much discretion the courts will give the agency in structuring relief, he said. The FTC commissioners are expected to release their decision early next year. Copyright �2003 TDD, LLC. All rights reserved.

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