Sirius-XM, Microsoft-Yahoo, and White House 2009: The predictions
Democrats have called the Bush administration far too soft on corporate mergers and are predicting that a new president will impose more restrictions. Are they right?
CNET News.com's Declan McCullagh and Anne Broache wrote this article.
It may seem that the Bush administration's approval of the Sirius-XM merger should invite a rush of deals before the next presidential administration, which could be Democratic and therefore more hostile to billion-dollar corporate combinations.
After all, Democrats have spent years alleging that the Bush crowd is overly merger-happy--with the corollary implication that a Clinton or Obama administration won't be. One 2006 column in the New York Times charged that there was a "lack of interest in antitrust enforcement these days," and one frequent liberal lament has been that the incoming Bush Justice Department settled too quickly with Microsoft in late 2001.
But academics who have compared the antitrust enthusiasm of Democratic and Republican administrations have found that the reality of antitrust challenges is more complex, and perhaps even a bit counterintuitive. (This matters for mergers including Microsoft's planned purchase of Yahoo, which is already facing antitrust scrutiny.)
A 2001 study by economics professors from the Georgia Institute of Technology and the University of Cincinnati found that "politics, as measured by the party of the president and the Republican versus Democrat composition of the House and the Senate, does not have a clear impact" on the number of antitrust cases filed by the government.
Subsequent research by economists Tom Fomby and Dan Slottje of Southern Methodist University arrives at the same conclusion by analyzing criminal and civil antitrust filings by the Justice Department from 1925 to 2002. They found that the political party in the White House doesn't matter; neither does whether it's an election year or not.
What does seem to matter is economic activity. When unemployment is increasing, they concluded, Justice Department officials are less likely to bring antitrust cases (perhaps for fear of creating more unemployment). When inflation is increasing, on the other hand, antitrust litigation is more likely (perhaps based on the belief that monopolies cause inflation). They dubbed this the "Economic Reticence Index," and believe that unemployment is a more important factor than inflation.
If that's true, and if the Bush administration is no different from its Republican predecessors, a housing-led recession dragging on through 2009 and 2010 could yield relatively easier approvals for Microsoft-Yahoo and other possible mergers. The bust following the unsustainable boom--created by an expansion of the money supply--has already caused layoffs in the housing sector, and greater overall unemployment seems likely to follow.
But the assumption that the Bush Justice Department is similar to other Republican Justice Departments may not be true. Vivek Ghosal, the Georgia Tech professor who co-authored the 2001 study, told CNET News.com in an e-mail message on Monday that the Bush administration "has been a true outlier with a very low level of merger scrutiny and challenges."
Translation: Any two companies eyeing a wedding had better hurry up with the nuptials.
"The Bush administration has apparently never seen a telecommunications merger it doesn't like," said Rep. Edward Markey, the Massachusetts Democrat who leads a House of Representatives telecommunications and Internet panel. "Its decision to approve the XM-Sirius merger without conditions is therefore unsurprising."
Sen. Herbert Kohl, the Wisconsin Democrat who leads the Senate's antitrust panel, similarly accused the Bush administration's Justice Department of repeatedly "failing to oppose numerous mergers, which reduced competition in key industries" and "not bringing a single contested merger case in nearly four years."
"You're certainly not going to be better off waiting for another administration, and you may very well be worse off," said Mark Ostrau, co-chairman of the antitrust and unfair competition group at Fenwick & West in Mountain View, Calif. "I think (Bush administration officials) have been, on the margin, more permissive than others."
Ostrau said he thought that if, for example, the XM-Sirius or the Whole Foods-Wild Oats mergers had been subject to scrutiny by the Clinton administration's Justice Department, it would have "either challenged or sought some concessions," although he acknowledged that the Federal Communications Commission, which is still reviewing the satellite radio deal, may still do that.
In the communications sector alone, the Bush administration has approved the sizable mergers of AT&T and BellSouth, AT&T and SBC Communications, Verizon and MCI, Google and DoubleClick, and Microsoft and Aquantive, to name a few.
"The general attitude among antitrust professionals today is that the Bush administration has been less aggressive in its merger policy than prior Democratic administrations," added Albert Foer, an attorney who serves as president of the American Antitrust Institute, a think tank that supports more extensive use of antitrust law. "This is borne out in the numbers and in surveys of practitioners and seems unrelated to the rise or decline in numbers of mergers."
Should a Democratic president be elected this fall, his or her Justice Department might require companies to acquiesce to more regulatory demands to get mergers approved, and where the situation might be a close call, it might be more inclined to stop the merger than the current administration would, Foer said.
Some mergers, such as Microsoft's Aquantive deal, have been allowed to proceed without an extended probe. One way of gauging the merger-friendliness of an administration is whether it opts to open such a review, said John M. de Figueiredo, a professor of law and strategic management at the University of California at Los Angeles.
"If one looks at the number of cases...it is generally seen that Republican administrations, when backed up by a Republican Congress, are more favorable to mergers and acquisitions than is a Democratic president when it's a Democratic Congress," he said in a telephone interview.
Still more research suggests that, when it comes to the Federal Trade Commission, the likelihood of merger challenges is related to interactions between the White House and the U.S. Congress--which oversees the Justice Department and the FTC and approves their budgets. (The two agencies share responsibility for challenging mergers.)
"A company wanting to press a questionable merger might want to time it to be handled by the current administration," Foer said. "But many other considerations besides antitrust policy go into the strategic decisions that corporations make."