Mergers

• Pages: 233-345

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CHAPTER V

MERGERS

A. Introduction

Mergers and acquisitions are an important aspect of the

telecommunications sector. A primary benefit of mergers to the economy

is their “potential to generate significant efficiencies and thus enhance

the merged firm’s ability and incentive to compete, which may result in

lower prices, improved quality, enhanced service, or new products.”1 On

the other hand, mergers can have the potential to produce anticompetitive

effects, for example by eliminating competition between actual or

potential competitors (horizontal mergers) or by foreclosing or raising

rivals’ costs ) when one of the merging companies’ products may be a

necessary component or complement of the other company’s products

(vertical mergers).2 In these cases, the issue is whether the merged firm

may be able to raise prices unilaterally or otherwise exercise market

power, or whether the increased market concentration could facilitate

coordinated interaction among rival firms.3

This chapter provides an overview of the legal standards that govern

the examination of mergers for potential anticompetitive issues,

describes how these standards are applied to mergers in the

1. U.S. DEP’T OF JUS TICE & FED. TRADE COMM’N, HORIZONTAL MERGER

GUIDELINES (2010) [hereinafter 2010 MERGER GUIDELINES]. The 2010

Merger Guidelines followed and supplanted the 1992 Merger

Guidelines, as amended in 1997. DEP’T OF JUSTICE & FED. TRADE

COMM’N, HORIZONTAL MERGER GUIDELINES (1992, revised 1997)

[hereinafter 1992 MER GER GUIDELINES]. The 1992 Me rger Guidelines,

in turn, had followed and s upplanted the 1984 Merger Guidelines

promulgated by the Department of Justice. U.S. DEP’T OF

JUSTICE , MERGER GUIDEL INES (1984) [hereinafter 1984

MERGER GUIDELINES].

2. See, e.g., Willard K. Tom, Anticompetitive Aspects of Market-Share

Discounts and Ot her Incentives to E xclusive Deals, 6 7

ANTITRUST L.J. 615 (2000); Memorandum Op. & Orde r, In re MCI

Commc’ns Corp., 12 FCC Rcd. 15351, 15410, ¶ 155 (1997); see also

Chapter 1, Part G.

3. See 2010 MERGER GUIDELINES, supra note 1.

234 Telecom Antitrust Handbook

telecommunications sector, and discusses remedies to address potential

anticompetitive harm.

B. Overview of Legal Standards

1.

Federal Antitrust Laws

Generally, t he bulk of merger review—and merger litigation—in the

United States is conducted by either the Antitrust Division of the U.S.

Department of Justice (DOJ) or the Federal Trade Commission (FTC),

which share jurisdiction over federal antitrust enforcement.4 Insofar as

mergers involve entities in the telecommunications sector that hold

Federal Communications Commission (FCC) licenses and authorizations,

the FCC also plays an important role.5

When analyzing the competitive implications of a merger, the DOJ

and the FTC will do so using the principles laid out in the agencies’

jointly published 2010 Horizontal Merger Guidelines.6 The analytical

framework developed and applied by the federal antitrust agencies

through these guidelines has become the primary framework for merger

analysis, whether conducted by one of the antitrust agencies, by state

attorneys general, or by the courts.7 While the FCC has not formally

adopted the 2010 Merger Guidelines, it has relied on them in recent

decisions.8 However, an understandin g of merger analysi s begins with

the relevant statutory schemes.

4. The agencies “clear” mergers to each other to avoid duplicative review;

most telecommunications mergers are cleared to the DOJ. The clearance

process is discussed in more detail later in this section.

5. See infra, Part B.2.a.

6. See 2010 MERGER GUIDELINES and their predecessors, supra note 1 .

7. See, e.g., FTC v. Sysco Corp., 113 F. Supp. 3d 1, 38 (D.D.C. 2015)

(noting that the “Merger Guidelines are not binding, but the Court of

Appeals and other courts have looked to them for guidance in previous

merger cases” (citing FTC v. H.J. Heinz Co., 246 F.3d 708, 716 n.9 (D.C.

Cir. 2001) and United States v. H & R Block, Inc., 833 F. Supp. 2d 36, 52

n.10 (D.D.C. 2011))).

8. See Memorandum Op. and Order & Declaratory Ruling, In re Cellco

P’ship, 27 FCC Rcd. 10,698, 10,717, ¶ 52 & n.118 (2012) [hereinafter

Verizon Wireless/SpectrumCo ] (citing the 2010 Merger Guidelines for

market definition); see also Memorandum Op. & Order & Declaratory

Ruling, In re Deutsche Telekom, 28 FCC Rcd. 2322, 2336, ¶ 42 n.101

(2013) (citing the 2010 Merger Guidelines in relation to unilateral ef fects

from a horizontal merger).

Mergers 235

a. The Clayton Act

The antitrust review of mergers and acquisitions is primarily

governed by Section 7 of the Clayton Act.9 Section 7 prohibits any

merger, stock acquisition or asset acquisition in which the effect of the

transaction may be to “substantially lessen competition” or “tend to

create a monopoly” “in any line of commerce or in any activity affecting

commerce in any section of the country.” 10 Although mergers are

typically challenged before consummation, the legality of a transaction

under Section 7 may be determined at “any time”11 and the antitrust

9. 15 U.S.C. §18. Both the FTC and t he DOJ have direct aut hority to

enforce Section 7 of the Clayton Act, although the FTC currently lacks

jurisdiction over mergers of communications common carriers. See

Federal Trade Commission Act § 5a, 15 U.S.C. § 45(a)(2). The DOJ can

also directly enforce Sections 1 and 2 of the Sherman Act, 15 U.S.C.

§§1, 2; the FTC possesses similar authority under Section 5 of the FTC

Act. See 15 U.S.C. §45. The FCC has jurisdiction to analyze mergers of

communications common carriers under Sections 7 and 11 of the Clayton

Act, as well as jurisdiction under the Communications Act of 1934, as

amended, 47 U.S.C. §§ 151-614.

10. 15 U.S.C. §18.

11. See United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 597

(1957). Indeed, the challenge in the du Pont case occurred 30 years after

the transaction closed. See id. at 598. More recently, the FTC challenged

St. Luke’s Health System’s acquisition of Saltzer Med ical Group P.A.

months after the transaction closed. Complaint, Saint Alphonsus Med.

Ctr.-Nampa, Inc. v. Saint Luke’s Health Sys., 2014 U.S. Dist. LEXIS

9264 (D. Idaho 2014), ECF. No. 98. Mergers can also be challenged ex

ante or ex post under Sections 1 or 2 of the Sherman Act. Section 1 of the

Sherman Act prohibits “combinations” in restraint of trade, whether “in

the form of trust or otherwise,” 15 U.S.C. §1, and Section 2 makes it

illegal for parties to “combine or conspire with any other person or

persons to monopolize any part of . . . trade or commerce,” 15 U.S.C. §2.

However, amendments to the Clayton Act in 1950 and 1980 have

rendered Section 1 largely redundant in merger litigation, except in cases

involving some regula ted firms or pre-1980 mergers. In the rare recent

merger cases that have been challenged under Section 1, courts have

applied the same substantive test applicable in merger cases br ought

under Section 7 of the Clayton Act. See United States v. Rockford Mem’l

Corp., 898 F.2d 1278 (7th Cir. 1990) (holding that mergers ar e

condemned by the Clayton and Sherman Acts under the same standards).

There is scant authority, however, for the application of Section 2 to

mergers, though it is at least conceivable that Section 2 might reach