Encouraging Signals on Merger Review from DOJ’s Antitrust Division

swisherFeatured Expert Column: Antitrust & Competition Policy — U.S. Department of Justice

By Anthony W. Swisher, a Partner in the Washington, DC office of Baker Botts LLP.

Recently, Assistant Attorney General Makan Delrahim of the U.S. Department of Justice’s Antitrust Division gave a speech that offered a new vision for how DOJ approaches the merger review process. The most notable feature of Mr. Delrahim’s speech—certainly the one garnering the most press attention—is his goal of completing Second Request merger investigations in six months.

For those unfamiliar with DOJ antitrust enforcement, a “Second Request” is issued by the DOJ (or the Federal Trade Commission) at the end of the initial 30-calendar-day waiting period under the Hart-Scott-Rodino filing process. A Second Request consists of an extensive list of document and data requests, and frequently includes numerous depositions of company executives. A Second Request often requires the production of millions of documents and terabytes of data. Currently, it is not uncommon for a Second Request investigation to take 12-15 months or more to complete. Mr. Delrahim cited a study that indicated the average time for the agencies to complete a significant merger review has increased by 65% in the last five years. A dedicated effort to shorten this process is welcome indeed.

In the same vein, Mr. Delrahim also announced several other reforms, all directed at making the merger review process more efficient, more transparent, and less resource-intensive, for both the merging parties and the government. Without question, merger reviews can be unwieldy, time-consuming, and expensive. Many of Mr. Delrahim’s proposals have the potential to significantly improve the merger process and allow the merging parties and the government to focus on the critical issues more quickly and efficiently.

What is even more significant, however, is Mr. Delrahim’s emphasis of a critical underlying point:  Recognizing the benefits that mergers can bring to the economy, the antitrust enforcement agencies should minimize the degree to which they interfere in the merger process.  Stating that “I agree with Bill Baxter,” Mr. Delrahim quoted the great former head of the Antitrust Division who said that mergers are “an extremely valuable capital market phenomenon, that they are to be in general facilitated, and that it is socially desirable that uncertainty and risk be removed wherever possible to do so, subject, of course, to the very important limitation that where a merger threatens significantly to lessen competition, it should be halted.”

To echo comments in some of the recent press coverage, Mr. Delrahim’s remarks on this point are “a breath of fresh air.”  As I have discussed previously, too often federal antitrust merger enforcement seems to give short shrift to the benefits that flow from mergers. Not only is the free flow of capital an essential component of economic liberty—and liberty in general—but mergers also have the potential to unlock benefits for consumers and for the economy at large.

A healthy merger enforcement policy should recognize the benefits that mergers can bring and seek to intervene only in those very limited circumstances where a particular transaction truly presents harm to competition. Starting from a place of respect for mergers as “a valuable capital market phenomenon,” a recognition of the harm that can flow to society from an overly aggressive enforcement agenda, and a sense of humility when it comes to exercising the agencies’ enforcement powers, the agencies can intervene where truly necessary, while allowing non-problematic deals—the overwhelming majority—to proceed unencumbered.

Consistent application of this philosophy can lead to many tangible benefits.  First, the agencies would, at every step of the investigation, balance the potential competitive effects against the benefits of the deal that might be delayed, reduced, or lost.  I am not talking here about an efficiencies analysis as a counterbalancing effect once an anticompetitive effect has been found.  I am talking about a more fundamental recognition that transactions have economic and societal benefits that need to be weighed against the need for potential intervention.

Second, a healthy respect for the benefits of a deal should inform the agencies’ approach to merger remedies where they are warranted.  A respect for a merger’s benefits should result in seeking a remedy that is narrow in scope and tailored only to the discreet markets that face potential competitive harm.  Preserving the larger deal to the maximum extent possible and preserving the benefits that are likely to flow from the transaction should be of paramount importance.  And of course, as the Antitrust Division’s merger review initiatives demonstrate, a recognition of the societal benefits that flow from transactions can lead to practical process improvements that benefit all involved.

To see Mr. Delrahim acknowledge that Mr. Baxter had it right is extremely encouraging.  The proposed reforms he announced hold the potential to significantly improve the merger review process, but more importantly, his comments reflect an underlying premise that is much needed in antitrust enforcement.

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