States and Mergers
STATES - and presumably US consumers - were given a significant victory recently by the nation's highest court. The US Supreme Court ruled unanimously that states and other nonfederal parties may challenge a merger transaction based on federal antitrust law, even if the merger has already gained approval of federal agencies. Talk about your ironies: Here's a high court appointed largely by the Reagan White House, an administration that tended to favor giant multibillion-dollar mergers, now throwing up a formidable roadblock to further mergers. At the very least, states are now expected to be able to challenge mergers that involve companies located within the confines of their particular borders.
The case before the court involved a prospective $2.5 billion merger between two giant California supermarket chains, Lucky Stores and Alpha Beta. The merger was formally approved back in 1988, although the two chains have not yet been able to combine operations.
The Federal Trade Commission and the US Justice Department both gave a go-ahead to the merger, even though Lucky is the largest grocery chain in California and Alpha Beta is fourth. California reckons the merger will cost consumers over $400 million annually in grocery bills. The two chains insist the merger will save consumers money due to greater operating efficiencies.
Given the high court's ruling, California can now formally challenge the supermarket merger in court.
Will other states follow California's lead in challenging intrastate mergers? Probably. A number of states, including Pennsylvania and Massachusetts, have been exploring stiffer legislative measures designed to thwart hostile takeovers. Some of these ``home field'' proposals are worrisome, because they seem intended simply to protect local management and jobs, even at a cost to economic efficiency and lower prices.
Surely a careful balancing act is required if consumers are to benefit. Takeovers have acquired an unhappy reputation, based on the go-go merger zeal of the late 1980s. Yet not all mergers are uncompetitive. US industry has felt a need to consolidate in part because of stepped-up competition from giant multinational companies abroad.
State regulators, familiar with local economic conditions, may have a clearer view of the harmful effects of an intrastate merger than do antitrust regulators in Washington. So it's well to give state offiicials a strong voice in the approval process. But it would be regrettable if state officials were able to thwart mergers that clearly facilitated America's need for global competitiveness.