Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: Antitrust Division official discusses merger enforcement analysis, (Sep 17, 2014)

By Greg Hammond, J.D.

In a speech delivered yesterday, David Gelfand, Deputy Assistant Attorney General for Litigation at the U.S. Department of Justice Antitrust Division, highlighted the Division’s merger enforcement efforts, the evidence that guides the Division’s analysis, and concepts to keep in mind when considering remedies for anticompetitive transactions. The remarks (“Reflections on the Past Year at the Antitrust Division”) were presented at the Global Competition Review Live Conference in New York City.

Evidence in merger analysis. “[I]t seems almost too elementary to say but merger enforcement is highly fact-specific and evidence is what drives our decisions,” Gelfand said. “Not rhetoric. Not public relations campaigns. Not editorial and commentary. Not form letters from third parties. Evidence.”

He noted that the Antitrust Division’s analysis of mergers typically begins with the 2010 version of the Horizontal Merger Guidelines. The most important sentence of which, Gelfand suggests, is: “The Agencies consider any reasonably available and reliable evidence to address the central question of whether a merger may substantially lessen competition.” Specifically, the Deputy Assistant Attorney General listed three types of evidence that have been featured prominently in recent investigations: (1) customer testimony, (2) company documents, and (3) economic evidence.

According to Gelfand, the Division frequently places a great deal of weigh on what customers say, because they can provide important information on how competition works in a particular industry, how suppliers react to each other in bidding situations, whether rivals offer competitive products and prices, and whether prospective entrants are likely to be qualified within a reasonable period of time. However, like all evidence, Gelfand notes, the credibility of customer testimony depends on the facts of the case, as customers might lack critical knowledge regarding what drives competitive decisions by their suppliers, and they could have personal biases.

“Company documents are also extremely important,” said Gelfand, as “they offer merging parties an excellent opportunity to convince us why their view of the world is correct.” He suggests that merging businesses provide the Division with business plans, internal presentations, bid lists, emails, and other business records that corroborate their view. “We are often persuaded by a party’s argument when the party is able to point to credible, contemporaneous supporting documents,” he said.

Lastly, Gelfand stated that economic evidence is critically important, as it allows the Antitrust Division’s team of approximately 50 PhD economists to better understand relevant competition, to formulate theoretical models, to econometrically estimate effects, and to evaluate economic work the parties submit. However, he offered a word of caution with regard to economic evidence, noting that economic models are limited by how they fit with the facts of any given case. Although “[e]conometric evidence is a tool that can be very persuasive,” the extent of its persuasiveness “depends on whether the assumptions are credible, whether the estimation method is valid, and whether limitations of the data have been respected.” Gelfand therefore stressed the importance of candor when merging companies deal with the Division, noting the critical importance of parties getting the facts right prior to presenting their arguments to the Division.

Remedies. The Deputy Assistant Attorney General also discussed the benefits of realistic and constructive remedies. “In many instances, the division can achieve success without expending the time and resources involved in protracted litigation through meaningful consent decrees that target only the anticompetitive portions of a deal,” Gelfand stated. Examples of recent success stories included Landmark Aviation’s acquisition of Ross Aviation (U.S. v. LM U.S. Corp Acquisition Inc., Case No. 1:14-cv-01291) and Tyson Foods’ acquisition of Hillshire Brands Company (U.S. v. Tyson Foods, Inc., Case No. 1:14-cv-01474), in which both sets of parties successfully negotiated consent decrees that allowed them to close their mergers within 60 days and 30 days, respectively, of their initial HSR filing.

Gelfand noted a number of suggestions to keep in mind when merging companies want to resolve competitive concerns through an agreed remedy: (1) be forthcoming regarding potential areas of competitive concern; (2) suggest clean divestitures that include all assets necessary for the purchaser to be an effective, long-term competitor; (3) be prepared to identify a qualified up-front buyer; and (4) provide the Antitrust Division with the necessary information to assess the proposed remedy.

News: AcquisitionsMergers Antitrust