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Democratic control of Congress probably won't roil the M&A waters — much.
Kate O'Sullivan, CFO Magazine
March 1, 2007
January's airline-merger hearings by the Senate Commerce, Science and Transportation Committee seemed to signal a new sheriff in town. Daniel Inouye, the Hawaii Democrat installed as chairman after Republicans lost control of both houses of Congress last November, presided while the CEO of Delta Air Lines attacked US Airways's hostile bid for his company and the US Airways CEO defended it. The questioning strongly suggested that the committee didn't much like the proposed deal, which US Air later withdrew.
At an earlier hearing, Senate Judiciary Committee chairman Patrick Leahy (D–Vt.) cast a stern eye on brand-name drug-makers' attempts to delay competition from generics. Staffers suggested that the bidding war for pharmaceutical distributor Caremark Rx — being waged between Express Scripts and drugstore chain CVS — was ripe for a review by Judiciary's antitrust subcommittee, whose new chairman, Herb Kohl (D–Wis.), is particularly interested in how deals could affect drug competition and pricing. And some predict incoming committee chairs will put other industries, including energy, media, and telecommunications, under the microscope.
"There are lots of ways that Congress can touch a merger," says Bruce Hoffman, former deputy director of the Federal Trade Commission's Bureau of Competition and now a partner with Washington, D.C., law firm Hunton & Williams. If lawmakers get tough on perceived anticompetitiveness in certain fields, "you may see reviews in those areas slow down," he adds. "The agencies don't want to be too far out of step with Congress."
For the most part, though, longtime Capitol Hill watchers predict that any changes in mergers-and-acquisitions oversight will be touches rather than knockout blows.
When it comes to how government regulators act, "I think the enforcement decisions will stay put," says Roger Fones, a former member of the Department of Justice's antitrust division and now a partner with law firm Morrison and Foerster. "The fact that Congress has changed doesn't really change the administration on the DoJ side."
The reason is that congressional committees, either under Democratic or Republican control, often conduct themselves as balanced panels whose main function is to let the public see what is going on in the executive branch — whether in antitrust matters or other areas. (Both Republicans and Democrats at Senator Inouye's January hearing expressed doubts about a US Air–Delta deal, for example.) Furthermore, the DoJ, the FTC, the Federal Communications Commission (FCC), and other groups with statutory power to block mergers don't view Congress as much of a watchdog.
"Antitrust agencies are not very politically responsive to either end of Pennsylvania Avenue, and merger analysis does not change much from administration to administration," according to Hoffman, who agrees that "overall, there's not likely to be any significant change in enforcement policy."
Explains one senior staffer on the antitrust subcommittee of the Senate Judiciary Committee: "In a very partisan Congress, we have been able to be a little island of bipartisanship." And even as relationships between majority and minority members are still being worked out on Senate and House panels, other committees are striving for much the same balance.
Exposing the Process
That's not to say that the new Democratic chairs won't bring their own antitrust agendas into play.
Michigan Democrat John Conyers, who replaced Wisconsin Republican Jim Sensenbrenner as House Judiciary Committee chairman, has been a longtime congressional force, and sponsored the Oil and Gas Industry Antitrust Act of 2006. The legislation aims to tackle rising energy prices, in part by requiring the FTC and the DoJ to study the impact of mergers. Energy and Commerce chair John Dingell, also of Michigan; Financial Services chair Barney Frank of Massachusetts; and Ways and Means chair Charles Rangel of New York, all strong party voices, are also likely to take an activist approach (see "Chasing Out the Elephants" at the end of this article).
On the Senate side, Hawaii's Inouye for years has scrutinized aviation-related matters because of his state's dependence on airlines. In a statement issued before the January hearings, he noted that his committee also would be working on a "significant reauthorization" being planned for the Federal Aviation Administration (FAA). "If the benefits of [airline] consolidation are less than promised," he said, "we will have to consider addressing this matter in the context of the FAA reauthorization legislation we plan to develop this Congress." Senator Kohl, the antitrust-subcommittee head, also has concerns about aviation mergers, as well as consolidation in other fields.
"There is some sense that this DoJ is not aggressive enough in challenging mergers," says the antitrust-subcommittee staffer, noting the relatively smooth passage of last year's biggest merger: AT&T's $85.8 billion purchase of Bell-South. In the staffer's view, though, the committee's main role is to help the public see the Administration's merger-review process more clearly. "We can't tell the agencies what to do," he says, "but we can examine why they've done what they've done, and be a bigger part of the process." Hunton & Williams attorney Hoffman notes that Congress is also awaiting release of a multiyear bipartisan report by the Antitrust Modernization Commission. Due out this spring, it may contain suggestions for how legislators can get more involved in merger reviews.
The AT&T case — under a Republican-controlled Congress — illustrates how congressional representatives of both parties often have an impact without actual hearings. Members sometimes call or write antitrust officials to express opinions on particular transactions. The threat by lawmakers to even hold hearings was enough to slow the bipartisan FCC's passage on the deal until late last year, after AT&T offered concessions on its plan, says Joel Grosberg, a partner in the antitrust and competition practice at McDermott Will & Emery.
Postmortems led by Democrat-run committees may not be able to change the status of a done deal, Grosberg adds, but the generating of political heat could well impact antitrust agencies' reviews going forward. And under the new leadership, he says, "I think there will be a lot of headlines."
Kate O'Sullivan is staff writer at CFO.
|Chasing Out the Elephants
New Democratic chairmen of some key congressional committees with antitrust oversight
|Judiciary||John Conyers (D–MI)||Jim Sensenbrenner (R–WI)|
|Energy and Commerce||John Dingell (D–MI)||Joe Barton (R–TX)|
|Financial Services||Barney Frank (D–MA)||Michael Oxley (R–OH)|
|Ways and Means||Charles Rangel (D–NY)||Bill Thomas (R–CA)|
|Commerce, Science and Transportation||Daniel Inouye (D–HI)||Ted Stevens (R–AK)|
|Judiciary||Patrick Leahy (D–VT)||Arlen Specter (R–PA)|
|Antitrust Subcommittee||Herb Kohl (D–WI)||Mike DeWine (R–OH)|
|Banking||Christopher Dodd (D–CT)||Richard Shelby (R–AL)|
|Source: Committee reports|