The legal issues that relate to mergers and acquisitions (M&A) of businesses.

The Department of Justice and the Federal Trade Commission (FTC) today jointly released a Commentary on the Horizontal Merger Guidelines, which explains how the agencies have applied the Guidelines in the context of actual merger investigations. The release of this commentary is part of the agencies’ “ongoing efforts to increase the transparency of their decision-making processes.”

In the commentary’s introductory chapter, the agencies describe the fundamental legal principles that govern their merger analysis. The remaining chapters address market definition and concentration; the potential adverse competitive effects of mergers, including coordinated interaction and unilateral effects; entry conditions; and efficiencies. Throughout the commentary there are short summaries of actual merger investigations that are used for illustrative purposes.

The commentary highlights the "integrated approach to merger review" that the agencies apply in each case. That is, the investigating agency will not engage in a mechanical step-by-step analysis of a merger that begins with defining the relevant market and ends with efficiencies or the failing company defense. Rather, the agency focuses on the key inquiry—the likely competitive effects that will result from the merger under review—at every step of its investigation.

The Justice Department announced that Japanese firm, CMET Inc., has agreed to plead guilty and to pay a $100,000 criminal fine for conspiring to obstruct justice in connection with the settlement of a 2001 merger case. The government charged CMET and its co-conspirators with carrying out the conspiracy by, among other things:

• Concealing from the Department of Justice (DOJ) the full extent and nature of the contemplated business relationship between CMET and its co-conspirators and CMET's principal motivation for bidding on a technology license being offered under the terms of the consent decree in the merger case;

• Procuring CMET's bid for the technology license offered in the consent decree proceedings based on covert understandings between CMET and its co-conspirators concerning future business dealings and the settlement of a patent dispute which, if known to the DOJ, could have disqualified CMET's technology license bid;

• Altering the translations of documents which CMET submitted to DOJ in connection with its application to acquire the technology license; and

• Making misrepresentations, in writing and orally in meetings with representatives of the DOJ, concerning CMET's intent to vigorously compete in the United States if granted the technology license.

In Whirlpool/Maytag deal, investors in limbo, awaiting DOJ decision, I gave a quick assessment of my take on the antitrust issues raised by Whirlpool's proposed acquisition of Maytag. We still don't know whether DOJ will challenge the deal, but it's clear that the staff investigating the deal doesn't like it.

According to this Reuters article, DOJ lawyers against Maytag takeover: source, staff has "'made it clear' to the antitrust chief, Thomas Barnett, that they believe the $1.7 billion deal would hurt competition." The article states that "it was not clear whether the staff lawyers had given him a formal recommendation." Given my own experience at DOJ, I can pretty much guarantee that a formal recommendation has in fact been made.

I'm equally confident that staff is preparing for a court challenge. Think about it--Barnett only has until March 30 to decide whether he's going to challenge the deal. That's just over two weeks away. If Barnett decides to ask a court to enjoin the transaction, DOJ will have to race--not walk--to the courthouse to prevent the parties from closing the deal. It stands to reason that while staff awaits a decision from Barnett, it must prepare for litigation.

According to Maytag, Whirlpool Shares Drop on Theory, it sounds like staff has plenty of fodder for a complaint. The article has this interesting tidbit: 

Prudential Equity Group analyst Nicholas Heymann said he believes the DOJ will oppose the merger "based on the potential for anticompetitive pricing by the merged entity."

In a March 17 research note to investors, he speculated that the merger only makes economic sense for Whirlpool if the company increases the price of some washers and dryers to help boost profits.

The big losers here? Maytag and its shareholders, of course. While the rest of us speculate about how all of this will play out, Maytag's financial position continues to deteriorate at its shareholders' expense. So, in the end, even if Whirlpool doesn't get to acquire Maytag, Whirlpool will leave Maytag even weaker than it was when it first bid for it. Ironic, isn't it?

Knight Ridder, Inc., owner of 31 daily newspapers, is still up for grabs. Reporters from the St. Paul Pioneer Press, one of those newspapers, had the unenviable task of reporting on the uncertain fate of their own paper. According to their article, Pioneer Press' future in limbo with bid from crosstown rival's owner, McClatchy Co. could end up buying the Pioneer Press. The problem? McClatchy owns the Minneapolis-based Star Tribune--a paper that competes directly against Pioneer Press.

Quite a bit of speculation accompanied the news of McCatchy's emergence as a front-runner for Knight Ridder. Most assume that the Justice Department, which historically has had the jurisdiction to investigate newspaper mergers, would challenge a merger of the two companies unless they agreed to the divestiture of newspapers that directly compete. Would McCatchy fight to keep both the Pioneer Press and the Star Tribune or the other overlapping assets? Unlikely, say some.

I say, let the fight begin. However, I doubt Knight Ridder's board of directors, which will be considering the various bids tomorrow, would agree with me.

Italy's top antitrust enforcer, Antonio Catricala, told an Italian newspaper that a merger between two Italian energy companies Enel, the country's largest utility, and Eni, an oil and gas company, would violate Italy's antimonopoly laws. According to this Reuters.com article, Italy antitrust head: Enel-Eni merger to breach law, talk of such a merger began after France announced that it would approve the consolidation of two French energy companies, Gaz de France and Suez, when it learned of "Enel's possible bid for Suez." Concerning the "debate about protectionism and economic patriotism," a debate occurring in the US as well, "Catricala said neither [the] market nor consumers needed national champions."  Here, here.

Deals that received antitrust approval this week include:

• Imation Corp.'s proposed $330 million acquisition of Memorex International Inc., which would combine Imation's disk and tape business with Memorex' recordable CDs, DVDs and other digital media business, received antitrust approval from the US.

• The proposed merger of Axalto and Gemplus, makers of smart cards, has received regulatory clearance from the Justice Department.

• The FTC conditionally approved Allergan's acquisition of Inamed, which I reported about here.

• Lagardere's $537.5 million acquisition of Time Warner Book Group has been approved by the FTC, according to Reuters.com.

• The FTC will allow Emerson Electric Co. to acquire Artesyn Technologies, Inc., reported Reuters.com.

On a less upbeat note, General Dynamics and Anteon International Corp. announced that their proposed merger will be investigated by the Justice Department. Each company received a Request for Additional Information a/k/a a Second Request. Sit down and relax, folks. This one will take a while.

1. that cosmetic botulinum toxin, which is used to treat facial wrinkles caused by repetitive muscle movement, has a "unique mechanism of activity" that differentiates it from other cosmetic products and procedures;
2. that cosmetic botulinum toxin has no close substitutes and therefore constitutes a relevant product market;
   
3. that the relevant geographic market is the US;
4. that Allergan's cosmetic botulinum toxin, Botox, dominates the US market because it is the only one approved by the FDA;
5. that Inamed is on the verge of obtaining FDA approval for its cosmetic botulinum toxin, Reloxin;
6. that other potential entrants lag well behind Inamed; and
   
7. that Inamed is an imminent competitor whose acquisition by Allergan would have caused significant harm to US consumers.
   

On Sunday, March 5, AT&T announced its intent to acquire BellSouth for $67 billion. According to Marketwatch.com's article, AT&T to pay $67 billion for BellSouth, the combined company will become "the largest phone company." It will have "70 million local phone customers, 10 million broadband users and more than 300,000 employees."

Big doesn't mean bad, though. Indeed, from an antitrust perspective, this isn't a terribly interesting deal. There is no geographic overlap between the parties in the market for local phone service. AT&T and BellSouth both offer wireless service, but they do it through Cingular, a joint venture in which AT&T owns a 60 percent interest. Because AT&T's majority ownership interest effectively gives it control of Cingular for antitrust purposes, AT&T's acquisition of the remaining 40 percent has no competitive significance.

Other factors militate in favor of relatively quick antitrust approval. The DOJ and FCC recently investigated and approved other deals in the telecommunications sector including SBC's acquisition of AT&T and Verizon's acquisition of MCI. Thus, the agencies should have a lot of current information about the relevant markets and how they operate. In addition, the telecommunications market is vastly different from the days of the old AT&T. Today, cable companies compete against the SBC's and BellSouth's of the world to offer consumers local and long distance telephone service and Internet access. You have VOIP companies like Vonage competing in the telephone service market. And, you can't forget feisty, aggressive competitors like Verizon.

The only possible competitive overlap that might raise some competitive concerns is in the market for enterprise customers. It's possible that either the DOJ or the FCC could require some relief, e.g., divesting some lines, but it's doubtful that that alone would derail this deal.

In the mid to late 1990's, one of the technology issues getting a lot of attention during due diligence was Y2K. Today, well, today is just much more complicated.

Take this post, Next Generation Due Diligence, by Anthony Cerminaro of the Deal Attorney. Anthony's post, based on an article to which he links, has a long due diligence checklist. Frankly, the checklist goes on forever and even the article's author, Charles F. Bacon of The Due.Com Companies, concedes that it's "far from all-inclusive."

What else should corporate counsel include on a due diligence checklist? According to this post, Web 2.0 Due Diligence Tip: Check for Adsense Problems, from Devin Thorpe's Mid Market Maven, you should add "check for adsense problems when buying websites" to your list. You don't see that phrase on too many due diligence checklists, do you?

So, what’s the lesson? You can't conduct due diligence in a vacuum. It must at all times be driven by business realities. Otherwise, you're wasting your time and your client's hard-earned cash.

Update: As initially drafted, this post may have inadvertently created the impression that the article discussed in Anthony Cerminaro's post was written by Anthony himself. It wasn't. Charles F. Bacon, CEO of The Due.Com Companies, wrote it. My apologies to Mr. Bacon and my readers for any confusion.

Welcome to LegalMandA, another blog dedicated to serving the needs of businesses and their counselors. LegalMandA focuses on one of my favorite subjects: mergers and acquisitions. I'm Denise L. Diaz, your host.

I started working on deals early in my career, after joining the Antitrust Division of the US Department of Justice as a Trial Attorney. Indeed, the very first matter I worked on was a merger investigation in the oil field services industry. I've worked on dozens of mergers in a variety of industries since then--mostly on the defense side.

To learn more about me, read my Author Profile at CompanyCounselor, another blog brought to you by Know More Media. Be sure to visit my own blog, The Antitrust Monitor, for news and commentary on antitrust developments.