# Presentation: 273329

## New York State Bar AssociationAntitrust Section Annual Meeting

Thomas O. Barnett
Assistant Attorney General
Antitrust Division
U.S. Department of Justice

January 25, 2007

- Thomas O. Barnett
- Assistant Attorney General
- Antitrust Division
- U.S. Department of Justice
*January 25, 2007*

***Merger Enforcement:***
***A Quest for Efficiency**** *

- UNITED STATES DEPARTMENT OF JUSTICE
- ANTITRUST DIVISION

## Slide 2

## Overview

- Merger Review Process Efficiency
- HSR process
- Burdens/Trends
- Merger Review Process Initiative (2001 Initiative & 2006 amendments)
- Merger Enforcement Efficiency
- Transparency
- Mergers 2006 Highlights

## Merger Review Process Efficiency 

- HSR premerger review process
- Since 1976, investigate most potentially anticompetitive transactions before merger is consummated
- More effective relief and greater certainty to merging parties
- Enforcement Goals:
- Identify potentially anticompetitive transactions quickly so that remainder can close
- Reach the right enforcement decision quickly and with minimal burdens necessary

## Process Efficiency

- Transactions Cleared Without Additional Agency Review (FY 2002-2006)

-   5,927 of 7,210 transactions proceeded without the Agencies requesting information beyond the initial HSR filing

## Process Efficiency

- Transactions Cleared Without Agency Second Requests (FY 2002-2006)

-  Agencies issued 2nd requests in 214 (3%) of 7,210 transactions

## Process Efficiency

- Antitrust Division Investigations Resulting in 2nd Requests (FY 2002-2006)

-  2nd requests issued in 99 out of of 398 Division investigations

## Process Efficiency 

- Volume of information produced
- Ten  years ago:  Few hundred boxes a “large” production
- Now:  Terabytes, millions of pages common
- Verizon/MCI and SBC/AT&T:  25 million pages
- Concern for agencies as well as parties

## Process Efficiency 

- Explanatory Trends:
- Technological change – electronic documents/data
- E.g., emails
- Complex products, specialized services, rapid change
- E.g., TVs
- Merger analysis is increasingly sophisticated and data-intensive
- E.g., merger simulations and critical loss analysis

## The Shape of Things to Come

## Process Efficiency 

- Conclusions:
- The volume of information will continue to increase
- Identify transactions that do not threaten harm to competition before issuing second requests wherever possible
- Improve ability to identify and process relevant information

## Merger Review Process Initiative 

- 2001 Merger Review Process Initiative
- Aggressive & efficient use of initial waiting period
- Tailor 2nd request investigations
- Focus investigations on dispositive issues (*e.g.* exchange mergers)
- Encourage open communication/dialogue
- Scheduling agreements

## Merger Review Process Initiative

- Antitrust Division Investigations Resulting in Second Requests (FY 2000-2006)

-  More effective use of the initial waiting period has enabled the Division to conclude more investigations without issuing 2nd requests.

- Merger Review Process Initiative Announced

## Merger Review Process Initiative

- Average Days between Preliminary Investigation Opening and Early Termination/Close

-     Average Duration of 2nd Request       Investigations

- 3 yr. averages

- 2 yr. averages

## Merger Review Process Initiative

- 2006 Amendments
- Announced in December ‘06
- Internal review of merger investigations
- “Process & Timing Agreement” merger review option
- Limit number of custodians/provide post-complaint discovery
- Contested litigation rare
- Revised Model 2nd Request

## Better Information Collection

## Merger Enforcement Efficiency

- Transparency

## Merger Enforcement Transparency

- Parties:  Encourage open dialogue during 		       investigation
- Public:  Enforcement actions
- Public:  Decisions to close
- Closing statements (e.g., AT&T/Bellsouth and Whirlpool/Maytag)
- 2006 DOJ/FTC Commentary on the Horizontal Merger Guidelines
- NY State Bar Association Annual Meeting Dinner

## Mergers 2006 – Highlights

- 1860 transactions notified to the agencies (8.9% increase over FY 2005)
- Over 580 transactions filed so far in FY 2007
- Antitrust Division:
- Opened 77 HSR + 20 non-HSR merger investigations
- Issued 17 2nd requests
- 16 Transactions Modified
- 10 merger challenges filed
- 6 transactions restructured in response to Division investigations

## Mittal/Arcelor

- $33 billion steel merger, hostile transaction
- Anticompetitive effects in the $2.3 U.S. tin mill products market
- Consent decree requires sale of Dofasco (Arcelor subsidiary) or alternative tin mill product assets (Sparrows Point, MD or Weirton, WVa) if Dofasco sale not possible

## Mittal/Arcelor

- “Pocket” decrees
- Used by Division for some time, but rare
- Insurance policy on a fix-it-first remedy
- Insurance policy on regulatory fixes (e.g., FCC/radio station mergers)
- May be used in rare cases where antitrust review interferes with market by operation of law (e.g., foreign tender offer regulations)

## Slide 22

## Maytag/Whirlpool

- Residential washers and dryers
- High market shares creates initial presumption
- Initial Presumption Rebutted
- Well-established rival brands (GE/Frigidaire/Kenmore)
- Recent entrants with growing share (LG/Samsung)
- Large retailers (2/3rds of sales) can shift shares
- Excess capacity (U.S./Mexico/Korea)
- Customers/Internal Documents

## Mergers 2006 – Year in Review

- Likelihood of Violation

- Exelon/PSEG

- Maytag/Whirlpool

- HHI

## Exelon/PSEG

- $16 billion electricity generation merger
- Focus on mid-Atlantic region (NJ and PA)
- Complex merger analysis:
- Electricity generating plants not the same (hydro/nuclear/coal/gas turbine)
- “Fuel curve”
- Auction process

## Exemplar Cost Curve

**Exemplar Cost Curve**

- 0

- 0

- 5,000

- 10,000

- 15,000

- 20,000

- 25,000

- 30,000

- 35,000

**CAPACITY (MW)**

**COST ($/MWh)**

- Note: For illustrative purposes only – not an actual representation of market conditions.

## P1

**Exemplar Cost Curve**

- 0

- 0

- 5,000

- 10,000

- 15,000

- 20,000

- 25,000

- 30,000

- 35,000

**CAPACITY (MW)**

**COST ($/MWh)**

- Note: For illustrative purposes only – not an actual representation of market conditions.

- P1

## P1

**Exemplar Cost Curve**

- 0

- 0

- 5,000

- 10,000

- 15,000

- 20,000

- 25,000

- 30,000

- 35,000

**CAPACITY (MW)**

**COST ($/MWh)**

- Note: For illustrative purposes only – not an actual representation of market conditions.

**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**
**|**

- P1

- P2

## Exelon/PSEG

- Likelihood of substantial anticompetitive effects in the $19.8b mid-Atlantic wholesale electricity market
- Consent decree: Divest 6 electricity plants (5,600 megawatts of generating capacity) in PA and NJ
- Transaction ultimately abandoned

## Telecommunications Mergers

- Verizon/MCI
- SBC/AT&T
- AT&T/BellSouth
- Sprint/Nextel
- Cingular/AT&T Wireless

## Wireless Telecommunications

- 			_DynaTAX 8000X_	_RAZR_
*Introduced*	1983			2004
*Weight*		2 pounds		3 ounces
*Cost*		$4,000			$200-400
*Talk time*	30 minutes		7 hours

## Wireless Telecommunications

- 				_1985_			_2006_
*subscribers*		203,000			219 million
*revenues*			$354 million		$118 billion
*Avg. monthly bill*		$95 (1988)		$49.30
*Avg. minutes of use*		140 (1993)		740 (2005)
*Effective price*		44 cents/minute (1993)	7 cents/minute (2005)
*Penetration*		<1% in 1985		over 71% (2005)
*Cell sites*			599			over 197,000
*Direct employees*		1,697			238,236
- (from CTIA & FCC reports)

## Tunney Act Proceeding

***Metro Area in Verizon Territory: CLEC Fiber***

**Notes:**
Philadelphia

## Tunney Act Proceeding

- Other Competitive Fiber

## DFA/Southern Belle

- Dairy processing: anticompetitive effects in school milk contracts in 100 school districts in Kentucky & Tennessee
- Case history
- Pre-trial settlement

## Benefits of Greater Transparency

- Predicting Enforcement Actions
- Finding Violation
- Remedy
- More efficient planning by business
- More efficient review and resolution
- Fewer contested challenges
- Faster resolution through consent decrees

## Greater Process Efficiency and Enforcement Transparency

- WIN-WIN-WIN
- Division-Business-Consumer Welfare

## New York State Bar AssociationAntitrust Section Annual Meeting

Thomas O. Barnett
Assistant Attorney General
Antitrust Division
U.S. Department of Justice

January 25, 2007

- Thomas O. Barnett
- Assistant Attorney General
- Antitrust Division
- U.S. Department of Justice
*January 25, 2007*

***Merger Review:***
***A Quest for Efficiency**** *

- UNITED STATES DEPARTMENT OF JUSTICE
- ANTITRUST DIVISION