M&A Judicial Review In Dire Need of Repair

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The New York Sun

Mergers and acquisitions are important to the American economy. But what was once a relatively clear legal process has recently broken down with the 2004 amendments to an obscure law, the Tunney Act. Repairing the Tunney Act would give greater confidence to businesses considering mergers and acquisitions. To repair the merger review process, Congress should place time limits on judicial review of these consent decrees.

The original 1976 Tunney Act provided a predictable mechanism for judicial review of Department of Justice and the Federal Trace Commission consent decrees without requiring these agencies to resort to lengthy litigation. Critics claimed the Tunney Act led only to perfunctory judicial reviews of antitrust consent decrees, particularly after the judicial review of the Microsoft consent decree a few years ago. In 2004, Congress amended the Tunney Act to reinforce judicial review of antitrust consent decrees under a “public interest” standard. Congress wanted a more rigorous review of consent decrees, but exactly how rigorous is a matter of judgment.

The unenviable task of making an initial determination of exactly how rigorous the judicial review of antitrust consent decrees under the amended Tunney Act should be has fallen to U.S. District Judge Emmett Sullivan. The test cases involve the review of the already consummated mergers of SBC/AT&T and Verizon/MCI, both of which closed in late 2005. The Tunney Act challenges to these mergers were filed in early 2006.

Now nearly a year after these mergers closed, neither case has been resolved. Although there are examples of the FTC challenging a merger after it has closed (e.g., Chicago Bridge & Iron and Evanston Northwestern Hospital), these cases typically involve potentially unlawful behavior before the merger. The amended Tunney Act creates the possibility of governmental ex post merger review based not on prior unlawful behavior but only on future competitive concerns.

The amended Tunney Act provides no time frame for judicial review. It does not prescribe objective standards (other than the inherently ambiguous “public interest” standard) for judicial review. Nor does it prescribe specific remedies should a court find a consent decree not to be in the public interest.

Even when Judge Sullivan issues an opinion in the pending cases involving AT&T and Verizon, appellate litigation for each could conceivably linger for years. This is hardly the certainty that Congress intended. Companies entering mergers and acquisitions deserve more from the American legal system. This makes our economy less efficient.

The amended Tunney Act affects not just AT&T and Verizon but potentially any business filing Hart-Scott-Rodino disclosures with DoJ and the FTC. Any of the thousands of mergers and acquisitions filed each year is subject to federal antitrust review, and some portion of those reviews would not be approved unconditionally.

In the past, some portion of those merger reviews would result in voluntary divestitures in advance of an antitrust agency approval; and no more than two dozen others would result in consent decrees that might address both divestitures and future behavior; and still others in rare cases would be entirely opposed through litigation in court. While consent decrees are relatively uncommon, their availability helps both government agencies and merging parties avoid the far more costly prospect of litigation to block a merger.

Now, however, the potential for lengthy litigation under the amended Tunney Act makes consent decrees less attractive to either governmental agencies or merging parties. Fewer consent decrees mean greater use of more extreme antitrust agency remedies, including litigation to block a merger entirely.

Recently, the DoJ decided not to place any conditions on the AT&T/Bell-South merger under review, certainly mindful that such a decision would avoid the Tunney Act review of Judge Sullivan’s court. The Antitrust Division appears to have responded to a new law designed to strengthen judicial review of consent decrees by avoiding consent decrees altogether.

This broken process will be noticed, unfavorably, by the judiciary committees of both houses of Congress. Consent decrees have enormous value both to the government and merging parties.

Putting a time clock on judicial reviews of antitrust consent decrees would revive their use to the relief of both government agencies and merging parties and would relieve courts of the painstaking details necessary for a more detailed review.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.


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