Could UAL-US Airways Still Fly?
FTC commissioner Thomas B. Leary, in a speech titled "Efficiencies and Antitrust: A Story of Ongoing Evolution," recently described how industry economics now play a bigger part in the review of potential deals. There's "near-universal agreement that efficiencies are important" — a change in regulators' minds he described as "primarily driven by scholarship." And James's successor as antitrust chief, R. Hewitt Pate, said in a press interview that efficiencies are a "valid consideration in support of a merger," although he was skeptical about some improvements companies claim. "Particularly persuasive," said Pate, "are efficiencies that are likely to be passed through" to consumers.

Efficiency-based reviews, of course, require government antitrust staffers to develop expertise in individual sectors. Ben Buettell, managing director in the Chicago office of Houlihan Lokey Howard and Zukin, says this has happened in the food industry. Regulators still are tough on deals with anticompetitive elements, but they tend to attach "more conditions and requirements before passing on the deal," rather than simply oppose it.

In the defense industry, the DoJ raised 11th-hour questions in a proposed consent decree covering Northrop Grumman's purchase of TRW — the largest 2002 deal after Pfizer-Pharmacia. The concerns over a concentration of military sensors in the new company aren't likely to defeat the deal, though, just result in another remedy.

One test of how far regulators could conceivably go involves UAL and US Airways. Were they to propose a new combination as part of their bankruptcy plans, how could regulators permit a deal in 2003 that they blocked in 2001?

Boeing Co. CEO Philip Condit, whose company has a definite interest in the airline industry, has one idea: change some definitions. "I had a professor in business school who said the key to antitrust was defining the market," he says. While United and US Airways account for 23 percent of domestic traffic, the picture changes if competition is viewed globally, in a far-more-fragmented market, Condit notes. "I believe it is a global market."

Roy Harris is a senior editor at CFO.

M&A's Top 10 for 2000

In another U.S. off-year, a drug deal dominates. (Pfizer's announced purchase of Pharmacia is awaiting a November EU request for more information.)

*$ billions base equity price

Source: Mergerstat

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