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Corporations may have more freedom to merge than federal antitrust regulations suggest. Data released Thursday by the Federal Trade Commission and the Department of Justice show that the vast majority of government merger challenges involve market concentration scores far above the threshold that usually triggers antitrust alarms. “What is relatively clear from this is that mergers in moderately concentrated industries very rarely will be subject to an enforcement action,” said David Balto, a partner at law firm White & Case in Washington. To measure market concentration antitrust regulators use the so-called Herfindahl-Hirschman index. A merger’s “score” is calculated by adding the squares of the market shares of each competitor. So a market where company A had a 50 percent share, company B a 30 percent share and company C a 20 percent share would have an HHI of 3,800. If companies A and B were to merge, the HHI would increase to 6,800. The FTC and DOJ data show that less than 5 percent of challenged mergers between 1999 and 2003 had concentration scores below 1,800, the level identified in antitrust regulation as sounding the alarm. Even when the market concentration score climbs to 2,500, the percent of challenged deals increases only to 13 percent. To expedite deal reviews, the merger guidelines state that transactions where the HHI is less than 1,800 or increases by less than 100 points do not generally raise antitrust concerns. Antitrust experts have long recognized that the antitrust agencies were more accommodating than the merger guidelines suggest. Yet the agencies never conducted a study looking at the actual market concentration score for deals where they were prepared to block the transaction. American Antitrust Institute president Albert Foer said he worries regulators will use the data to justify either increasing the HHI threshold for competitive concerns or deemphasizing the importance of the concentration score. “The overall question that is looming here is whether this is an effort to establish a basis for a substantial revision to the [merger] guidelines,” Foer said. “We will have to see where this is headed.” The FTC and Justice Department will jointly sponsor a two-day workshop in February to explore the significance of the data. The data is limited to merger challenges and does not indicate what percentage of all deals at various market concentration levels were allowed to close. It also includes many deals where the companies were arguing that the government was defining the market too narrowly. Still, the data offers an interesting glimpse at the government’s enforcement program. For example, the data suggests that companies are willing to attempt in-market mergers even when they control almost all of the market. Nearly one-quarter of challenged mergers involved concentration scores above 7,000. To reach such a high HHI, the merged company would need to have more than an 80 percent market share. More than half of challenged deals involved post-merger concentration scores of more than 4,000. This means the merged company had to have a market share of between 40 percent and 60 percent. The agencies also broke out data for several industries. Enforcers were most likely to challenge mergers with relatively low HHI scores in the petroleum sector. Of the 205 challenged mergers, two-thirds had concentration scores below 2,500. Regulators also challenged a proportionally large number of bank mergers at relatively low concentration levels. Nearly a quarter of challenged bank mergers involved scores of less than 2,500. Most of the other industries broken out saw few deals challenged at concentration levels below 2,500. The dairy industry had one, groceries had 10, telecommunications had one, chemicals and pharmaceuticals had two, and waste disposal had none. Copyright �2003 TDD, LLC. All rights reserved.

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