There has not been much in the way of substantive merger antitrust pronouncements in the past month. While we eagerly await some activity from the courts, the FTC and the DOJ, including an appeal of a significant merger decision from the Western District of Kentucky (U.S. v. Dairy Farmers Association), a likely appeal in an FTC merger case (FTC v. Chicago Bridge & Iron), and some additional guidelines and comments on Merger Policy from both agencies, we have not had the flurry of activity in February that we had in prior months.
That’s not to say that the agencies are not doing anything. There are a number of very significant Second Requests currently percolating at both the FTC and DOJ. No one expects resolution on any of them in the near future (and for that matter, no one is expecting any significant challenges), however, the agencies currently are looking at the proposed mergers between:
• Blockbuster and Hollywood Video.
• Verizon and MCI.
• SBC and AT&T.
The Blockbuster / Hollywood Video proposed transaction is interesting for several reasons: (1) it is a hostile bid, at the moment; (2) the parties have tried to get the deal through the FTC several years ago and failed; and (3) it likely involves some significant market definition issues.
Hostile bids are interesting from an antitrust perspective, and they make the antitrust regulatory process extremely difficult. Usually, the merging parties are fighting to convince, in tandem, that their proposed transaction does not result in too much market concentration. Parties engage the agencies with their documents, expert testimony and substantive briefings, explaining that customers will not see increases in prices following the merger. Imagine, on the other hand, fighting not only the government, but your proposed merger partner as well. As we saw in Oracle/PeopleSoft, hostile bids greatly lengthen the antitrust review process because your purported partner is fighting you at the agencies tooth-and-nail. In Oracle/PeopleSoft, PeopleSoft, primarily through its legal counsel, Gary Reback, engaged in one of the most public displays of merger opposition, going as far as to write substantive white papers decrying the proposed combination from a competitive standpoint (one entitled “A Hostage Taking”), and starting his own weblog trying to undermine Oracle’s bid on antitrust grounds, on an almost daily basis. Even though the court eventually allowed that merger to proceed, there can be no doubt that PeopleSoft’s efforts had something to do with the DOJ’s (and 10 or so state Attorneys General) decision to challenge the merger. It will be interesting to see whether Hollywood engages in a similar offensive.
The ever-evolving arguments that on-line distribution competes vigorously with traditional bricks-and-mortar retailing will be a prevalent theme in the merger investigation (e.g., Netflix vs. in-store rentals), as will the argument that Wal-Mart competes with everyone (here, the parties likely will contend that sale of videos at Wal-Mart competes with rentals at Blockbuster and Hollywood Video).
The two telephone mergers likewise are interesting—not because anyone expects the agencies to challenge the transactions—but because of the enormity of the projects (not to mention the sentimental nature of SBC acquiring its former parent, AT&T). Just to show where we’ve come in merger antitrust review—according to estimates, there will be approximately 1,000 attorneys reviewing documents from both companies, for 70 hours / week, for three months. Go figure the bill out on that one! While there likely will be some relief required (e.g., divestiture of businesses in some markets), in all likelihood, the agencies eventually will allow the mergers to proceed.
I expect March will provide some interesting discussion topics in the area, as we see the stream of these investigations begin to conclude.