Battle for regulatory turf may complicate mergers
Cambridge — Businessmen with mergers in mind may be discomforted by the results of a bureaucratic turf battle in Washington.
For decades the administration of the antitrust laws has been divided between the Justice Department and the Federal Trade Commission. There was an informal division of enforcement territory. Justice Department officials, for instance, traditionally reviewed beer-company mergers; the FTC oil-company combinations. But in principle, a company did not know which agency would examine its newest acquisition.
Adding to the uncertainty was the fact that the lawyers and economists at the two agencies tended to differ somewhat in their antitrust toughness and their views of the legal fine points.
This problem was eased when the FTC approved the 1968 guidelines of the Justice Department for so-called ''horizontal mergers'' - that is, combinations of companies operating in the same market - that would raise the share of the market captured by the newly merged company. The guidelines included actual market concentration numbers to give businessmen some idea of whether the mergers or acquisitions they were considering were likely to be challenged as antitrust violations.
After 1968 and passage of the Hart-Scott-Rodino act, companies had to report their planned mergers to the government. Then the two agencies had 30 days to review the merger. If there was no objection in that time, the companies would usually go ahead with the merger. In theory, the merger could still be prosecuted. But it was unlikely.
About a year ago the two antitrust agencies decided it was time to review the guidelines. In the years since 1968, explained Walter Vandaele, economic advisor to the director of the Bureau of Competition of the FTC, the two agencies were analyzing possible mergers in a somewhat different way than the guidelines suggested. Court interpretations of the law differed sometimes from the guidelines. And economic analysis indicated the guidelines were not fully reflecting the realities of competition.
So the two agencies formed working groups of lawyers and economists to prepare new guidelines. ''We hoped to come together and sign off on one document ,'' said Mr. Vandaele, a Harvard University economist on leave, during an interview. ''But it didn't happen.''
On the morning of June 14, the Justice Department announced a 2:30 p.m. press conference to release revised guidelines, notifying the FTC at the same moment. It was too short a time for the five commissioners to approve the document. FTC Chairman James C. Miller III did say, though, that the commission would give ''considerable weight'' to the Justice Department analysis.
''We have not understood why he (William Baxter, head of the Justice Department's Antitrust Division) did that,'' Mr. Vandaele says. ''We regret it. It would have been better if it hadn't happened.''
A Justice Department spokesman says there was coordination between the agencies in the weeks leading up to the issuing of the guidelines. ''It was not really dumped on them out of the blue,'' he says.
Whatever, one guess as to the reason for release of the guidelines before there was agreement between the two agencies is that the Justice Department was attempting to assert a ''number one'' status in the antitrust area. Congressional hearings July 1 could find out if Mr. Baxter was expressing a certain bureaucratic macho spirit or not.
The result is that the FTC came out with its own guidelines, and some businessmen contemplating merger now have an extra challenge - they may have two guidelines to examine in judging whether or not a planned combination is legal.
Mr. Vandaele of the FTC says the two guidelines are ''basically'' similar. One difference - which Mr. Vandaele describes as ''superficial'' - is that the Justice Department guidelines have actual concentration numbers. For instance, in a highly concentrated market, the government would probably have challenged a merger between two equal-sized companies with sales as small as 4 percent of the market. The new guidelines wouldn't likely challenge such a combination unless each company had at least 5 percent of the market. The FTC decided to use no such numbers in the guidelines, though it will look at such numbers in reviewing mergers. Instead, the FTC guidelines discuss for some 13 single-spaced pages such issues as barriers to entry into the market by new competitors, technological change, growth in demand in the market, definition of the market (for instance, do real lemons compete with concentrated lemon juice?), and so on.
There are also other differences.
Whatever, the guidelines are generally considered slightly less tough on horizontal mergers than the old ones, but not by any means a lifting of the merger gates entirely. They also look more deeply at the economic-competitive issues. Indeed, Mr. Vandaele joked that economist-consultants could soon be moving into some of the homes being vacated in Washington by lawyers suffering from reduced business regulation.