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The Federal Trade Commission’s failure to stop a coal mining merger could have broad ramifications for the U.S. government’s ability to block anti-competitive deals in scores of industries. Antitrust experts said the court ruling issued Monday in Arch Coal Co.’s $384 million acquisition of Triton Coal Co. raises questions about when regulators may block a merger. It also calls into doubt whether the Bush administration can successfully revive a legal theory on competition, called coordinated interaction, that top antitrust officials say is key in merger enforcement. “This is an amazing decision for the defense bar,” said Marimichael Skubel, a partner at law firm Kirkland & Ellis in Washington. In his ruling U.S. District Judge John D. Bates attacks the FTC’s most potent weapon in merger challenges — its ability to obtain a preliminary injunction to block a deal until it can challenge the transaction before an administrative law judge. The courts historically have required the FTC to meet a very low burden of proof to obtain an injunction. As a result, most companies are willing to sell an operating unit or other assets as part of a settlement to avoid a fight. Bates may have changed that calculus. The courts have ruled that the FTC may presume that a merger violates antitrust law if a company’s score on the so-called Herfindahl-Hirschman index, a measure of market concentration, is higher than 1,800 and increases by more than 50 points because of the deal. Once the FTC proves this, the companies become responsible for showing why the market concentration scores are irrelevant. Most companies are unable to do this because judges require significant evidence. The result: the FTC gets its injunction. That did not happen here. Bates concluded that because these scores are at or only slightly above the thresholds, the FTC’s case is weak, which effectively means that the mining companies could easily prove that the market share data was insufficient to warrant an injunction. “Although the FTC has satisfied its prima facie case burden, the FTC’s prima facie case is not strong,” the judge wrote. “Certainly less of a showing is required from the defendants to rebut a less than compelling prima facie case.” Skubel said this represents a significant departure from the status quo. “The FTC has long held that as long as it gets the presumption, then it wins the preliminary injunction,” she said. Under Bates’ ruling that is no longer true, which could make it easier for merging companies to beat the FTC in court. The judge also rejects the idea of coordinated interaction, which holds that a merger is illegal if the resulting players in a market can coordinate on pricing or output. Experts said Bates set a very high bar for the FTC to prove coordinated effects cases. Under the judge’s interpretation anything less than outright evidence of coordination is insufficient. “The judge seemed to act as if he needed evidence of actual collusion,” said David Balto, a partner at law firm Robins Kaplan Miller & Ciresi in Washington. “That is simply not true.” Balto said the FTC needed to show only that the remaining coal mining companies in Wyoming’s Southern Powder River Basin, where Arch Coal and Triton operate, would have a propensity to collude after the deal. “You have that here,” he said. The court’s decision essentially guts the FTC’s main enforcement weapon for policing industries where coordination is the primary worry, Balto said. These include the oil patch, hospitals and raw materials sectors. “This decision should be appealed,” Balto said. “It is very harmful to their enforcement effort.” Whether the FTC makes such an appeal depends on agency Chairman Deborah Majoras and the other four commissioners. Bates has barred Arch from completing the Triton deal through Friday to give the FTC time to obtain an emergency stay from the federal appeals court in Washington. An FTC spokesman declined to comment on the case. But the agency late Tuesday indicated that Bates would not be the last word on the deal. It filed an emergency motion with the federal appellate court in Washington seeking to block the merger pending appeal. Lawyers were split on whether the FTC should have appealed. One camp argued that Bates’ decision is so damaging that the FTC must seek to overturn it on appeal. Otherwise, companies will cite it for years to come to overcome antitrust challenges. The other camp says the risk of the federal appeals court siding with Bates is too great, noting that the 87-page decision is well reasoned and that it could be hard to convince an appeals court to overturn it. These lawyers say the better alternative is to forgo an appeal and continue with the administrative challenge to the merger, which could go to trial in a few months. That would give the FTC a better forum for establishing a record to support its coordinated interaction theory. Even if Arch were to appeal the administrative decision, the FTC would likely fare better because the court is supposed to defer to the agency unless there is a serious error. As it stands now, the FTC would win on appeal only if Bates misapplied the law. His factual findings on a lack of coordination cannot be challenged. Copyright �2004 TDD, LLC. All rights reserved.

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