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Scores of mergers could be exempt from government antitrust review as the result of a research project the Department of Justice and the Federal Trade Commission unveiled Tuesday. Assistant Attorney General R. Hewitt Pate said the Justice Department and the FTC are analyzing data from the past five years to assess the use of the so-called Herfindahl-Hirschman Index scores, which measure market concentration, in mergers where the government either filed suit to block the deal or accepted a settlement. “Our goal is to learn from the past to inform the future,” Pate said at the fall meeting of the American Bar Association antitrust section. “By doing so we hope to make our merger enforcement decisions more transparent, and to give the business community, the bar, regulatory agencies and others better information about our merger enforcement efforts.” The HHI is a shortcut antitrust regulators use to determine if deals warrant further investigation. HHIs are calculated by squaring the market shares for each company and adding the scores. A monopoly would score 10,000. Federal merger guidelines carve out a de-facto safe harbor for mergers where the resulting HHI score is below 1,800 or increases by less than 100 points. Regulators rarely give such deals a second look. Yet many mergers exceed these guidelines despite not posing a competitive threat. Antitrust lawyers have recognized that for years and encourage companies to proceed with mergers regardless of whether they breach the thresholds. Although most of those mergers eventually secure clearance, the deals often are subject to additional scrutiny. That results in delays and increases the costs of doing the merger. That is why some lawyers have argued that the HHI thresholds should either be increased significantly or ignored in favor of other predictors of anti-competitive harm. Pate would not say if the agencies would raise the thresholds as a result of the study, but lawyers who heard the speech and those involved in the review said such changes are a logical outgrowth of the study. “This will supply useful information that would allow the guidelines to be updated,” said Ky Ewing, a partner at Vinson & Elkins. A Justice Department official said after the speech that the goal is to better inform the business community when a deal is likely to encounter trouble. “If we are challenging mergers with an HHI change of 100, then [the merging companies] should know,” the official said. “Any if we are not, they should know that.” Sean Boland, a partner at Washington law firm Howrey, Simon, Arnold & White, said raising the HHI triggers would make it easier to explain the government’s merger enforcement program to businesses. “It sounds unreal to clients when you say their merger could be challenged at 1,800,” he said. “The problem is the guidelines don’t represent actual practice.” Pate said the review will cover the past five fiscal years and include deals where the government challenged the merger or announced that the participating companies had reached a settlement or abandoned the transaction. “More than 20 years have passed since the introduction of the Herfindahl-Hirschman Index as an important initial factor in the review of horizontal mergers,” Muris said. “The joint FTC/DOJ data release and workshop announced by Assistant Attorney General Pate today will provide the antitrust community with substantial information on the antitrust agencies’ law enforcement efforts, and is in keeping with our efforts to learn from and build on our past achievements.” This is the first time the agencies have conducted this type of study, Pate said. Yet he said such a retrospective analysis would help clarify for the business community and other regulators the market concentration levels that prompt an antitrust challenge. Pate said the agencies plan to release the first part of their study in early December. A follow-up report could come next year looking at the number of competitors in the market, broken down by major rivals and fringe players. He said the agencies could release data on cases where it declined to take an enforcement action. The Justice Department official said the initial review will involve about 200 mergers. It will include all actions by the government between Oct. 1, 1998, and Sept. 30, 2003. American Antitrust Institute president Albert Foer warned that the study could be the first step toward raising the HHI thresholds, a move he would oppose. “The data may show where enforcement decisions are made,” he said. “But that does not mean we need to change the guidelines to reflect reality.” Copyright �2003 TDD, LLC. All rights reserved.

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