Global Mergers Pushing the Boundaries of Antitrust Law

Europe’s antitrust brain trust had no sooner whittled the AOL-Time Warner merger down to size this month than it opened an investigation into Visa, the credit card giant.

Before that was the WorldCom-Sprint merger deal, which the Europeans unraveled; Microsoft’s would-be takeover of a British cable operator, Telewest, which they effectively blocked; and the Boeing-McDonnell Douglas marriage, whose dowry was partially dismantled.

A spate of high-profile corporate deals in which antitrust officials at the European Commission played the role of meddler, if not spoiler, has some Americans crying foul.

To U.S. Sens. Mike DeWine (R-Ohio) and Herbert Kohl (D-Wis.), Europe’s bureaucrats are influenced by “pan-European protectionism rather than by sound competition policy,” as they wrote to EC Competition Commissioner Mario Monti this month.

There is plenty of evidence to the contrary, and others see a less villainous intent behind the EC’s stepped-up attention to corporate behavior at home and abroad.

Though the news has been dominated by a handful of controversial transatlantic deals, the vast majority of the mergers reviewed by both EC and U.S. trust-busters is approved without major revisions. And when there are objections, they often are shared by both governments.

But what’s undisputed is that the whole concept of antitrust law, which is intended to preserve competition, is being tested by the forces of globalization.

In recent days, prominent lawyers ranging from Monti to former U.S. antitrust chief Joel Klein have warned of regulatory gridlock and urged international action to coordinate competition policies around the world.

“Competition policy, and specifically international cooperation in competition policy, have an important role to play if we are to avoid resentment against globalization and a protectionist backlash,” Monti told a lawyers’ conference in Italy recently.

Indeed, the EC’s newly vigorous antitrust bureaucracy is hardly alone in stepping into this global fray.

Ask the California software firm that discovered last month that its proposed purchase of another U.S. company has triggered questions from Irish antitrust officials worried about layoffs at a subsidiary in their country.

Or Kimberly-Clark, the Texas-based consumer goods giant that was forced to sell portions of its empire to satisfy Mexican antitrust authorities after it acquired Scott Paper in 1996.

Antitrust experts say these regulatory clashes, many of which are quietly settled out of public view, simply reflect a complex economic reality in which acquisitive corporations are spreading their wings--and potential harm--further and faster than ever before.

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More than 80 countries boast some form of merger review law, a number that is expected to balloon to 200 by 2025. These laws generally require governments to review any merger or acquisition involving companies with significant revenue or assets in their jurisdiction.

It will only get murkier as foreign firms move into increasingly open Asian countries such as Japan, whose traditional reliance on private-public collaboration and managed trade has come into conflict with U.S. antitrust policies.

“It’s no surprise to a major U.S. multinational that you might have to file something in Brussels; Ottawa; and even Canberra, [Australia],” said William Kovacic, an antitrust expert at George Washington University. “But it comes as a bit of a shock that you might have to file in Pretoria, [South Africa], or Jakarta, [Indonesia].”

In one recent proposed merger, Montreal-based Alcan Aluminium complained that it had to make 16 separate filings in eight languages and pay $100,000 in filing fees to satisfy the various nations that might be affected by the deal with France’s Pechiney and Switzerland’s Alusuisse Lonza Group.

It is proving to be an uncomfortable new world for Americans in particular. Until recently, they were the ones demanding overseas antitrust crackdowns with their dogged pursuit of anti-competitive practices abroad, whether it was uranium price-fixing in Canada in the 1970s or vitamin cartels in Europe in the 1990s.

“This is a bitter pill for the U.S. to swallow,” said Spencer Waller, a law professor and advisor to the American Antitrust Institute in Washington.

The fallout has ranged from bureaucratic headaches and legal costs to torpedoed deals.

This has been particularly evident in Europe, which has become a major antitrust battleground thanks to a more aggressive regulatory agency and a newly vigorous corporate sector. The lowering of trade barriers across Europe and the adoption of an 11-nation common currency, the euro, has unleashed a wave of cross-border mergers and takeover battles topped by British Vodafone’s $180-billion purchase of Germany’s Mannesmann, the world’s biggest corporate marriage to date.

Though inter-European alliances predominate, Europe’s biggest firms also have stepped up their investments and influence overseas, particularly in the United States, where a booming, technology-driven economy has been a global magnet. So far this year, European companies are buying U.S. firms at more than twice the pace of U.S. firms buying Europeans.

“Frankly, the sea change is that the United States really isn’t the epicenter anymore,” said Neil Campbell, an antitrust expert in the Toronto law firm of McMillan Binch.

This trend is particularly worrisome to U.S. politicians and businesspeople who fear foreign officials will use their antitrust authority as a guise to promote their own firms and workers or penalize American competitors.

Critics believe European antitrust officials have too much discretion and are vulnerable to political pressure because they can scuttle deals administratively, without going to court. In the U.S., regulators must go to court to stop a deal.

“The way to get antitrust enforcement in Europe is to pull on the sleeve of [European competition officials] and get them to go after your competitor,” said Peter Morici, a senior fellow at the Economic Strategy Institute in Washington and the author of a book on global antitrust issues.

Monti’s office strongly denies those charges, pointing out that of the 1,500 mergers reviewed by the commission over the last decade, just 13 were blocked and only one of those--the WorldCom-Sprint deal--involved purely U.S. companies.

EC regulators argue that they must be vigilant in advance of mergers because, unlike their U.S. counterparts, they lack the authority to break up companies found guilty of antitrust violations. That would change under a proposal to give them just such power.

Europe’s Competition Commission, which just celebrated its 10th birthday, has become more sophisticated in its handling of complex economic matters, according to Patrick Lynch, an antitrust expert with the law firm of O’Melveney & Myers in Los Angeles.

Under Monti, EC authorities have aggressively pursued anti-competitive behavior of all sorts, not just cases involving American firms. Recent EC decisions to block Swedish Volvo’s takeover of Scania and British tour operator Airtours’ planned purchase of First Choice Holidays elicited fierce criticism in its own backyard.

Lynch, who has represented IBM and Microsoft in European antitrust disputes dating to the 1970s, argues the gap between the American and European antitrust policies has shrunk considerably in recent years, in part because of greater collaboration between U.S. and European authorities.

“What I see [in Europe] is a growing acceptance of the economic theories that have been the driving force in U.S. antitrust laws for the past 30 years,” Lynch said.

Deals blocked by the EC, such as WorldCom-Sprint or Time Warner’s proposed $20-billion acquisition of Britain-based music giant EMI, also faced tough opposition from the Justice Department and the Federal Trade Commission, according to antitrust experts. AOL-Time Warner, the biggest merger ever, though finally approved by the EC, still faces a tough review in this country. The Visa probe recently announced in Europe has a related U.S. enforcement action already underway.

Under the EC’s tighter timetable, it generally rules on these global mergers before its U.S. counterparts, and thus gets a lot of attention.

Still, Lynch and others agree that the differences between the EC and U.S. antitrust policies are significant enough to create major roadblocks for corporations straddling the two continents.

The most stark example was the 1997 Boeing-McDonnell Douglas merger, which was approved by the U.S. but faced fierce opposition in Europe, home of the merged companies’ chief competitor, government-subsidized Airbus Industrie. During the bitter review process, both Europe and the U.S. accused each other of playing national favorites. Boeing was eventually allowed to proceed after agreeing to various fixes.

Tom Rosch of the San Francisco office of Latham & Watkins, former chairman of the American Bar Assn.’s antitrust section, thinks the EC’s “purely political” treatment of the Boeing-McDonnell Douglas merger was the “exception rather than the rule.”

But the Europeans and Americans see antitrust differently, Rosch and others say. The U.S., whose laws reflect a free-market-inspired skepticism about government regulation, tends to concentrate on price-fixing and other forms of anti-competitive behavior that lead to higher prices.

In Europe, where governments have unapologetically regulated the economy, officials have focused on preserving competition in the marketplace, regardless of the price impacts. In the Time Warner-EMI deal, for example, the EC was concerned about reducing the number of global music firms from five to four.

The EC’s blockage of Microsoft’s bid for control of Britain’s Telewest was sparked by concern that the deal would give the Seattle firm too much power in the British cable market.

The EC has cast a skeptical eye on such things as exclusive territory contracts and loyalty discounts given by firms to their business partners. Such behavior is not likely to draw the attention of U.S. regulators unless it creates a monopolistic situation that leads to price hikes.

Europeans are also more likely to use antitrust laws as a “pretense” to protect jobs, according to Martin Thompson, an antitrust attorney with Riordan & McKinzie.

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Though there is widespread recognition that global harmonization of antitrust policies would save governments and companies enormous time, money and frustration, it would face daunting issues of legal and economic sovereignty.

The EC has proposed adding such issues to the responsibilities of the World Trade Organization, the multilateral trade group. But U.S. officials, who believe the Geneva-based WTO is heavily influenced by its European members, strongly oppose this.

Eleanor Fox, a New York University law professor who served on the Justice Department’s recent task force on global antitrust issues, doesn’t think a “one-antitrust-standard-fits-all” policy is workable. Fox supports the creation of a global competition clearinghouse, perhaps with a single set of filing requirements and deadlines. Beyond that, she said, countries should be free to apply their own legal principles.

“There will always be points of divergence,” she said. “That’s why you don’t want too much written in concrete.”