Globalization, Deregulation and Technological Changes Cited as Factors in Record Number of Hart-Scott-Rodino Merger Filings
In testimony today before the Senate Judiciary Committee, Federal Trade Commission Chairman Robert Pitofsky cited globalization, deregulation and technological changes as some of the factors contributing to the largest corporate merger wave since the 1980s, and to a significantly increased workload for the FTC and the Department of Justice's Antitrust Division. While noting that relatively few mergers are anticompetitive, Pitofsky said the government must challenge those that are anticompetitive to avoid serious injury to consumers.
"We believe it's fair to say that the current merger wave is significantly different from the "junk bond"-fueled mergers of the 1980s," Pitofsky told Committee members. "Some of those mergers involved the acquisition of unrelated business that were targeted for their break-up value or designed to generate cash for corporate raiders. Today's mergers are more likely to be motivated by fundamental developments in the rapidly changing economy and reflect more traditional corporate goals of efficiency and competitiveness." As examples, he noted that many of the largest and most important product markets for American consumers have become much more global in scope, including the automobile, computer, pharmaceutical, and commercial aircraft industries. In addition, Pitofsky pointed to the many mergers taking place in the electricity, telecommunications and financial services industries -- all of which are undergoing or anticipating deregulation. He also cited technological change as a factor in some mergers because firms can acquire quickly the technology or other capabilities that allow them to enter a new market or become a stronger competitor.
In addition to highlighting the possible market conditions -- globalization, deregulation, and technological change -- that foster today's merger activity, the Chairman also focused on the impact of mergers on competition and consumers.
"Some mergers can harm competition. The harm to competition, in turn, can harm consumers in many ways -- higher prices, restricted supply of products, lower quality goods and services, less variety from which to choose, and less innovation for the future. In addition, less competition may dampen the incentives to be efficient, and economic performance will suffer. For these reasons, it is essential to challenge anticompetitive mergers forcefully and vigorously."
According to Pitofsky, "Recently, merger review has been an extremely daunting and challenging task. The number of mergers reported to the antitrust agencies under the Hart-Scott-Rodino Act (HSR) has increased dramatically -- from 1,529 filings in fiscal year 1991 to an estimated 4,500 in fiscal year 1998."
He added, "It has been predicted that the market value of merger transactions this year could exceed $2 trillion, compared to $600 billion for the peak year (1989) during the merger wave of the 1980s."
Pitofsky explained that a fundamental goal of the Clayton Act, including its HSR provisions, is to prevent harm to competition by stopping anticompetitive mergers before they take place. As a result of the current merger wave, the FTC devotes over two-thirds of its competition resources to merger enforcement, compared to about 50 percent a few years ago. "We believe those resources are well spent and produce significant dividends in protecting American consumers from competitive abuses and keeping the U.S. economy strong and competitive." He also noted, however, that "the majority of mergers do not appear to harm competition. ... To the extent mergers not challenged are procompetitive, consumers benefit and companies can be more competitive in both domestic and international marketplaces."
As an example, the Chairman highlighted the statistics for HSR filings in fiscal year 1997:
Of the 3,702 HSR filings in 1997, roughly 70 percent were reviewed very quickly and allowed to proceed before the end of the statutory 30-day waiting period and were granted "early termination."
About 14 percent of the 3,702 transactions were assigned to either the Commission or the Department of Justice's Antitrust Division for further substantive review. Of these mergers, 4.5 percent warranted requests for additional information ("second requests") from either agency. Almost half of those transactions resulted in enforcement action or abandonment due to antitrust concerns.
In fiscal year 1997, the FTC and the Antitrust Division challenged 52 mergers through court or administrative actions and settlement proceedings, and an additional seven transactions were abandoned before formal enforcement action was announced. Over the past three years, FTC actions alone resulted in an average of 32 mergers per year that were either challenged or abandoned due to antitrust concerns.
"We believe the level of enforcement has been appropriate. ... We review transactions efficiently, we promptly give the green light to those that clearly are not anticompetitive, and we challenge those that present a serious threat to competition and consumers," Pitofsky stated. "Furthermore, we place great emphasis on implementing an effective remedy when we find reason to believe that a merger will be anticompetitive."
The Chairman highlighted the FTC's efforts to ensure that its merger analysis is rigorous and forward-looking. For example, he noted that in 1995 and 1996 the Commission convened a series of public hearings to address whether antitrust analysis should be adjusted to take into account the new high-tech, global marketplace. "The hearings produced a comprehensive report and a general consensus that antitrust policy is on the right course," Pitofsky told the Committee. "This consensus reflects the basic fact that the antitrust laws have been and continue to be sufficiently flexible to accommodate new economic learning and a changing business environment."
Pitofsky stated that merger analysis has moved from a strict reliance on structure-based presumptions, including market share data, to a sophisticated analysis that takes account of the dynamic nature of competition in the real world. "The analysis recognizes that competition in many markets is global. Thus, antitrust analysis takes account of competition from imports, and it recognizes the need for U.S. firms to be competitive in world markets," Pitofsky said.
"Competition in world markets and competition at home go hand in hand -- one benefits the other. Likewise, efforts to increase efficiency and competitiveness transcend national boundaries. A merger that produces a stronger competitor in a global market could very well have procompetitive benefits in the United States, and those efficiencies will be taken into account," he explained.
In conclusion, Pitofsky outlined the Commission's concerns with innovation competition, its effort to recognize and give proper weight to the potential efficiency effects of mergers, and the importance of minimizing burdens on business as the agency conducts its merger reviews.
He also noted the importance of adequate resources in ensuring that the FTC and Antitrust Division can continue to accomplish both parts of the job -- to complete quickly the review of transactions that are not anticompetitive and to challenge those that are. "We are doing that job, but with too few resources." Pitofsky noted that the work years budgeted for the maintaining competition mission have been essentially flat since 1991 despite a three-fold increase in merger activity. He stated, "We are making every effort to keep pace with the surge of merger activity, but our resources currently are stretched to the limit."
The Commission vote to approve the testimony was 4-0.
Copies of the full text of the testimony are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. P950101)
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