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Mergers and Antitrust Regulation in the United States
Published online by Cambridge University Press: 21 July 2009
Abstract
In his article on mergers and antitrust regulation in the United States, Professor Cohn describes the intricate relationship between the two concepts. Antitrust law is analyzed along the lines of the Sherman Act, the Clayton Act and the Hart-Scott-Rodino Act. Furthermore, Professor Cohn frequently refers to relevant jurisprudence in his efforts to clarify the present-day legal situation in the United States with respect to horizontal and vertical mergers. He concludes that merger law in the United States is an amalgam of state and federal law which does not account for a ‘unified set of rules governing mergers’.
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References
1. Chartering of corporations by the central sovereign was well established in England by the time of American independence. In reaction against the power of centralized authority, the newly-formed United States government was accorded little power regarding commerce, nearly all powers being retained by the states.
2. A registered agent provides an office for official notification of matters to the corporation. This office is frequently held by companies or agents who have no other relationship to the corporation.
3. U.S. Const Art. IV-(l): “Full Faith and Credit shall be given in each State to the public acts, records and judicial proceedings of every other State”.
4. California has sought to impose limited requirements upon corporations organized elsewhere but having a majority of shareholders, sales and assets in California. Cal. Corp. Code par. 2115 (West 1977). The constitutional validity of such legislation has not been judicially resolved.
5. Liggett v. Lee, 288 U.S. 517 at 559 (1933) (dissenting opinion).
6. The statutory form of merger is referred to as a “Type A reorganization” under the Internal Revenue Code of 1954, as amended (hereinafter I.R.C.) par. 368(a)(l)(A).
7. This is known as a “Type C reorganization” under the tax laws, I.R.C. par. 368(a)(l)(A).
8. This is known as a “Type B reorganization” under the tax laws, I.R.C. par. 368(a)( 1)(B). Control may be achieved through less than 100% stock acquisition. In such circumstances there will remain some individual shareholders of the acquired company.
9. E.g., Gen., N.Y. Bus. Law, Art. 22, par. 340 (mcKinney).Google Scholar
10. Indeed, there is currently pending before the California Supreme Court an appellate court ruling that the California antitrust statute could not be used to block a merger reviewed and acted upon by a federal agency, California v. Texaco Inc., 174 Cal. App. 3d at 155,219 Cal.; Reptr. 824 (1986).
11. Ch. 647,26 Stat. 209 (1890); current version at 15 U.S.C. par. 1–2 (1982).
12. Ch. 323,38 Stat. 730 (1914); current version at 15 U.S.C. par. 12–27 (1980).
13. Standard Oil Co. v. United States, 221 U.S. at 60 (1911).
14. The Federal Trade Commission Act, Ch. 311,38 Stat. 717 (1914); current version at 15 U.S.C. par. 41–51 (1982).
15. Clayton Act, Ch. 323, par. 7,38 Stat. 730 (1914); current version at 15 U.S.C. par. 18 (1982).
16. Celler-Kefauver Act of 1950, Ch. 1184,64 StaL 1125 (1950).
17. 90 StaL 1390 (1976); current version at 15 U.S.C. par. 18a (1982).
18. Pre-merger notification generally must occur if (1) one of the parties to the transaction has sales or assets of at least 10 million U.S. dollars, the other at least 100 million U.S. dollars, and (2) the transaction is intended to result in the acquisition of 15% of the voting stock of the acquired corporation or assets or securities of at least 15 million U.S. dollars. Exceptions include an acquisition by a company already owing 50% of the voting stock of the target corporation.
19. 15 U.S.C. par. 18a(b)(l) and (e)(2). The periods are 15 days and 10 days for cash tender offers.
20. United States v. Aluminum Co., 148F. 2d 416 (2d Cir. 1945); Restatement of the Foreign Relations Law of the United States, par.18 (1965).
21. Even if the foreign company was not previously in the US market, acquisition of a US company could raise antitrust concerns under the ‘potential competitio‘n doctrine.
22. Recently the House Committee on the Judiciary, reporting on a vertical price fixing bill, commented adversely on the “comparative enforcement record of the Antitrust Division”, H.R. Rep. No. 421,100th Cong., 1st. Sess. 6 (1987).
23. The 1984 Merger Guidelines stated a concern that antitrust analysis might “restrict the efforts of American business to compete internationally”. See 49 Fed. Reg. 26,824 (1984).
24. Private enforcement of antitrust laws is permitted by par. 4 and 16 of the Clayton Act. Such actions have not been significant in number or effect. In Cargill Inc. v. Montfort of Col., 107 S. Ct. 484 (1986), the Court denied standing to challenge a merger unless the private plaintiff could allege a particular antitrust injury other than concern with increased economic power. This is a difficult burden of proof at the pre-merger stage.
25. 374 U.S. 321,363 (1963).
26. In United States v. General Dynamics, 415 U.S. 486 (1974), a prima facie case by the government was established although the post-merger firm would have only a 10.9% market share and the share of the top two firms increased from 45% to 48.6%. The prima facie case was overcome however by other factors.
27. 614 F. Supp. 1128 (D.D.C.1986).
28. Id., at 1138.
29. 415 U.S. 486 (1974).
30. U.S. Department of Justice Merger Guidelines, 49 Fed. Reg. 26, 823 (June 29, 1984), the ‘DOJ Guidelines’. References to guideline provisions will be ‘DOJ par.-’.
31. Both the FTC and the Antitrust Division of the DOJ enforce the antitrust laws. Any questions regarding which office will pursue a particular matter is generally resolved on the basis of prior experience and current workloads. See Andewelt, Merger Policy and Enforcement at the Antitrust Division, 54 Antitrust LJ. 95 (1985).
32. See Antitrust & Tr. Reg. Rep.(BNA) 270–271 (1984).
33. Demand substitution occurs when consumers are able to substitute one product for another within similar price levels. The DOJ Guidelines postulate a hypothetical “small but significant” price increase (generally 5%) to determine whether demand substitution would likely occur. DOJ par. 2.11.
34. This approach is known as ‘supply distribution’. The 5% figure indicated in the above mentioned note is again utilized.
35. The geographic market includes foreign competitors who sell or could sell within the region, even if foreign sales are subject to quotas or export limitations. DOJ par. 2.34.
36. The increase will be equal to twice the respective market shares of each of the merging companies. This is because (A+B)2, which is the post-merger sum equals A2 plus B2 plus 2AB. Since the pre-merger HHI already included the squares of A and B, the increase will be 2AB.
37. DOJ par. 3.1 l(a).
38. DOJ par. 3.1 l(b).
39. A major exception is where entry barriers are so low that no firm could gain monopoly profits. DOJ par. 3.3.
40. DOJ par. 3.1 l(c).
41. Id., par. 3.12.
42. Id., par. 3.3.
43. Id., par. 3.4.
44. Id., par. 3.42.
45. Id., par. 3.43.
46. Id., par. 3.5.
47. Id., par. 5.1.
48. 405 U.S. 562 (1972).
49. See Bork, R. The Antitrust Paradox 245 (1978): ”. lsqb;i]n the absence of a most unlikely proved predatory power, antitrust should never object to the verticality of any merger”.Google Scholar
50. 370 U.S. 294 (1962).
51. Id., at 331.
52. Id., at 323–423.
53. Sullivan, L. Antitrust 662 (1977).Google Scholar
54. 603 F. 2d 245 (2d Cir. 1979).
55. 603 F.2d at 354.
56. Id., at 335.
57. Id., at 352, n. 9.
58. DOJ par. 4.2.
59. See United States v. Consol. Foods Corp., 455 F. Supp. 108, at 140 (E.D., Pa., 1978); United States v. Alum. Co., 233 F. Supp. 718, at 727 (E.D., Mo., 1964), alFd. mem. 382 U.S. 12 (1965).
60. 376 U.S. 651 (1964).
61. Id., at 661–662.
62. 386 U.S. 568 (1967). Had Pacific Northwest remained independent there can be no doubt it would have sought to exploit its formidable geographic position vis-d-vis California (…) Unsuccessful bidders are no less competitors than the successful one (…) It was so strong and militant that it was viewed with concern, and coveted, by El Paso. If El Paso can absorb Pacific Northwest without violating par. 7 of the Clayton Act, that section has no meaning in the natural gas field.
63. Id., at 580.
64. Id., at 581. The Court's decision was not based on the potential competition doctrine alone. It also relied on marketing and financial advantages the merger would give Clorox, thus entrenching its position in an already oligopolistic market.
65. Id., at 581.
66. In the United States v. Black & Decker Mfg. Co., 430 F. Supp. 729, 725 (D., Md. 1976), the Court noted that many of the companies in the market equalled or surpassed the financial strength of the acquirer.
67. DOJ par. 4.1.
68. Id., par. 4.131–133.