The Obama administration is likely to be more aggressive than the Bush administration in its enforcement of antitrust laws, resulting in increased scrutiny of mergers and acquisitions. The greatest change should occur at the U.S. Department of Justice (DOJ) Antitrust Division, while the changes in merger enforcement will be less dramatic at the Federal Trade Commission (FTC), which has been actively challenging “problematic” transactions over the last few years. President Obama has selected former FTC commissioner Christine Varney to lead the DOJ’s Antitrust Division and FTC commissioner Jon Leibowitz to assume the role of FTC chairman. Both Varney and Leibowitz support active enforcement by the agencies of the antitrust laws, as well as more novel approaches to merger review. With Varney and Leibowitz at the helms of their respective agencies, the business community should expect less divergence between the enforcement policies of the DOJ and the FTC than existed during the Bush administration.
President Obama once said that he wants a DOJ that “actually believes in antitrust law.” During the Senate Judiciary Committee hearing to consider her appointment, Varney tried to assure the committee that if the committee confirmed her appointment “to the Department of Justice antitrust division, that the law will be vigorously enforced, horizontal mergers will be thoroughly examined, and where they lead to impermissible consolidation and concentration, they will be blocked.” Such tough posturing is a departure from the DOJ’s stance during the Bush administration, which cleared several controversial transactions, including the high-profile merger of two home appliance companies and the XM/Sirius transaction. During her confirmation hearing, Varney openly questioned why the DOJ did not challenge these mergers. In contrast to the DOJ’s enforcement record, the FTC challenged three transactions in 2007 and five transactions in 2008.
Despite the current economic climate, financial institutions can expect continued antitrust review of mergers and acquisitions. In light of the current economic downturn, Varney questioned “whether antitrust has failed” by allowing the government to create financial institutions that are “too big to fail.” Although the antitrust agencies typically yield to bank regulators with regards to financial mergers, Varney believes that antitrust regulators should have “a seat at the table…so that the voice of competition can be heard.”
Varney’s record while she was at the FTC indicates that she may promote novel approaches to analyzing potential competitive effects of a transaction. For example, in examining issues of competition in health care, Varney encouraged the FTC and the DOJ to be more accepting of novel delivery modes and models. Also, in transactions involving electronic high technology and biotechnology, Varney analyzed transactions based on their potential impacts on innovation-based competition, and was willing to challenge transactions based on innovation or potential competition theories. Varney may be inclined to look at other modes of non-price competition, particularly where they relate to consumer privacy, where she has significant experience both while at the FTC and more recently in private practice. Varney’s record also suggests increased scrutiny of vertical mergers where the facts support a likely anticompetitive effect.
Given Varney’s prior service as an FTC commissioner, she may be able to serve as a bridge between the DOJ and the FTC to repair what appeared to be a widening rift between the antitrust enforcement policies of the two agencies. Given the Obama administration’s focus on health care issues, under Varney’s leadership, the DOJ likely will also scrutinize consolidation among health care insurance companies and examine other conduct that may affect health care prices. Lastly, Varney likely will maintain open channels of communication with international competition authorities. Varney believes that convergence of international competition laws is important in a global economy and that cooperation among competition authorities is the best way to achieve that convergence.
Because the FTC was more aggressive in merger enforcement than the DOJ at the end of the Bush administration, changes at the FTC under Chairman Leibowitz’s leadership likely will be less pronounced. Recent D.C. federal court decisions relating to FTC challenges continue to apply a lower, more deferential standard of review for issuing a preliminary injunction for FTC merger challenges under the FTC’s authority pursuant to § 13(b) of the FTC Act, as compared to the DOJ, which has to apply for preliminary injunctions using standard equity principles. In addition, the FTC increasingly challenges transactions simultaneously in federal court and administrative proceedings, which could limit the role of federal judges. Key implications for parties contemplating transactions include the following:
- FTC/DOJ is more likely to consider vertical issues and less traditional theories of harm, resulting in more second requests and potentially more challenges.
- Even with a Democratic, more aggressive FTC/DOJ, the judiciary will still largely be Republican and more business-oriented. As a result, companies may be more willing to litigate merger challenges in court.
- With the economic downturn resulting in fewer large-scale deals, FTC/DOJ may be more vigilant in seeking to challenge transactions that did not meet the premerger notification thresholds of the Hart-Scott-Rodino Antitrust Improvements Act.
- FTC/DOJ will continue to focus on acquisitions resulting in minority positions in competing businesses.
- The DOJ is likely to scrutinize consolidation among insurance companies. The FTC is likely to scrutinize transactions in the energy and health care (hospitals and pharmaceuticals) industries.
Businesses contemplating transactions may consider the following action items:
- Update antitrust compliance program: With increased antitrust enforcement, it will be important for companies to implement or update antitrust compliance programs, in particular, reviewing existing documents and educating employees on document creation and integration planning guidelines.
- Analyze competitor transactions/conduct: If competitors’ or suppliers’ transactions will hurt a company’s business, that company should think about complaining to the antitrust agencies. The new administration likely will be more receptive to complaints and more willing to challenge problematic transactions or conduct. Complaining to a more aggressive FTC/DOJ about a transaction or conduct is often a more cost effective option than civil litigation.
- Consider the acquisition or sale of struggling companies and subsidiaries: Although the FTC/DOJ is likely to be more aggressive in merger enforcement, the current economic environment may allow companies to acquire or merge with significant competitors. The FTC/DOJ will look at the future competitive significance of merging parties and analyze whether a company will remain a viable competitor, or may be a “failing firm.” The failing firm defense, which is usually difficult for merging parties to establish, allows an otherwise anticompetitive merger to proceed if it meets certain criteria outlined in the Horizontal Merger Guidelines of the FTC and the DOJ. While it is unclear whether the agencies will be more amenable to this defense, because the economic crisis has had a dramatic impact on particular industries and companies, businesses may have the opportunity to enter into transactions that previously seemed problematic from an antitrust perspective.